Calculating your credit score requires advanced algorithms. Thankfully, we don’t have to do that math.
We do, however, need to understand why maintaining a good credit history is important. Credit scores are intended to help financial risk managers and others make fair decisions on whether or not to take a risk on someone. The risk might involve giving that person a loan, offering a credit card or approving their apartment rental application. Credit scores are designed to predict the likelihood that individuals will pay their bills.
“Small monthly payments on a credit card for Netflix or Spotify can help someone build up a good history, which leads to a good credit score,” explains Julie Kuzmic, director of consumer advocacy at Equifax Canada. “Set up an automatic transfer from your bank to pay off your credit card regularly and you’ll be building a consistent payment history with no effort.”
It’s good advice, especially when taking into account daily expenses that can add up.
Equifax Canada recently did a pulse check, a generational study of 1500 Canadians, asking people where they would have the hardest time cutting back if they had to. Respondents said that eating out, car expenses and travel are the top three expenses that would be difficult to cut back on.
Those in Atlantic Canada are most likely to say they would have a hard time cutting out their car. Those in urban areas and younger Canadians (18 to 24) are more likely to say that cutting back on eating out would be difficult. Younger Canadians were also most likely to say that cutting back on Netflix would be difficult.
Sadly, the research also revealed that only 42 per cent know their current credit score. Those between the ages of 25 and 44 were the most likely to know their credit score.
“Whether you’re negotiating rates on car payments or trying to secure the best mortgage rate, you should know your credit standing before sitting across from the lender,” adds Kuzmic. “If you want to pay less interest for a car or a home loan, then keep a good handle on your credit.”
The main factors involved in calculating a credit score are your payment history, used credit versus available credit, the length of your credit history, public records and number of inquiries into your credit file.
Learn more at equifax.ca/education.