Credit Scores and Ratings

What your credit score means, when it matters, and how you can improve it.

Your Credit Rating Is Important, but Don’t Obsess over Your Credit Score

by Kevin Sun

Your credit rating is important. In fact, you could say that it’s very, very important. After all, a good credit history helps you qualify for a car loan or mortgage. One of the first personal finance tips many of us heard was that we should start building credit. One of the first goals people who’ve gone through financial problems have is to fix their credit rating. However, the words “credit rating” mean more than you might think. Your rating includes your credit report as well as your credit score. Regularly checking your report is worth it, but obsessing over your score is not. Here’s why:

Credit Scores Say Less Than You Think

People tend to obsess over the idea of having a credit score. After all, we grew up in a culture of tests and letter grades, and when it comes to our money, we all want to do well. However, your credit score doesn’t tell you as much as you think. For starters, did you know that you have more than one score? There’s the one that TransUnion gives you and the one that Equifax gives you. You could think of these 2 scores as the “official” scores. Then there are more “unofficial” scores you could get from other companies, who figure out their versions by taking info from TransUnion and/or Equifax.

So your credit is graded by different organizations, all with their own opinions. You don’t know which grade will be the one that matters, although chances are that none of them will. Why? Because any credit score you see is “educational”. It won’t be exactly the one your lender uses to decide your eligibility and rates for credit. Your scores also change frequently; it might drop a bit one month and go back up the next, leaving you scratching your head wondering how it happened.

This isn’t to say that credit scores are meaningless. Even though you’ll have many different 3-digit numbers, they’ll all likely be in the same ballpark (unless you’re dealing with some financial problems), and that ballpark will indeed go up or down depending on your actions. What you shouldn’t stress yourself over are small number changes or wanting to reach a “perfect” score. The fact is that after you get into a lender’s ballpark for excellent credit (usually somewhere around the mid-700s), they’re not obsessing over how much higher you can make your number go – so neither should you.

Your Credit Score Doesn’t Always Matter

Lenders use your credit score to decide if you can be approved for financial products like credit cards, car loans, and mortgages. So if you’re not actually trying to get approved for something, then what your credit score is right now simply isn’t that important.

Of course, that doesn’t mean you shouldn’t build credit, or that you should put that off until you actually need it – by then, it would likely be too late. Good credit takes time to build. However, if you’re not planning to make use of it anytime soon, then push your score to the back of your mind and focus on following good credit habits instead. The best strategy is to slowly but surely develop a history of making your payments on time and meeting all the responsibilities that come with the money you’ve borrowed. This history provides creditors with solid proof that you can be trusted with their money.

credit score ranges online

The Key to Understanding Your Credit

If you really want to understand your credit, then you don’t need to look at your credit scores: you need to learn about credit reports. These will show your history of using credit with descriptions of how you’ve been meeting your repayment obligations. All credit scores are calculated based on info from your credit reports, so instead of getting a number that probably won’t be used by lenders, why not get the info that they will use? The only 2 credit reports that matter are from Equifax and TransUnion, and you can get them both for free once a year.

Credit is important, but understanding how your credit fits with your financial goals is even more important. Just because your credit is outstanding doesn’t mean you should get the biggest loans you can; just because you have bad credit doesn’t mean you can’t improve it or reach your goals another way, such as through saving up money so that you don’t need credit at all. If you really want to ace your personal finances, then your budget is your cheat sheet, and credit is just one part of that.

Need to Get Your Credit Back on Track? We’re Here to Help

If you’re not sure how to improve your credit, reach your financial goals, or get out of debt, then our credit counsellors would be happy to help you review your situation and make a plan that works for you. Your credit will never be affected by just talking to us because our appointments are free and confidential. Give us a call at 1-888-527-8999, send us an email, or chat with us anonymously online.

Worried about your credit?

Get answers from an expert.

Whether it’s about keeping, building, or rebuilding your credit, we can help if you’re feeling overwhelmed or have questions. One of our professional credit counsellors would be happy to review your financial situation with you and help you find the right solution to overcome your financial challenges. Speaking with our certified counsellors is always free, confidential and without obligation.

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