Financial Planning discussion topics sometimes pop out of thin air. Here is an example of how a casual conversation I recently heard motivated me to write about the importance of a strong personal credit rating.
I was in the mall, sitting on a bench and preparing myself for a class when a middle age woman and a young lady sat directly behind me on the other bench. I turned to look at them they smiled and I returned the greeting. A few seconds later the younger lady said, “You know, Theresa, it’s still the same; we wait but no one comes, no one who has the financial knowledge to teach us. Exactly what you got when you were in school thirty years ago is the same thing that I’m getting now and it is scaring me that when I’m your age my financial knowledge will be no better than yours. Do you know, Theresa, we live in a superior democracy, a country where everyone all over the wall wants to migrate to. We are the poster children of the G8 nations. We did not have a bank failure. We, as a country owe less money this year than we did last year, but, you know, Theresa, we a have an inferior financial literacy program for our citizens.”
I took a gulp of air, pulled out my note-book and my pen from my purse hoping there would be more to the conversation.
The older woman said, “I believe it was the same when my mother went to school. She had no idea about money and money management so I also didn’t learn from her or from my school. So, now I have no idea what is a credit rating and credit score. What I was hoping, Keenna is that you knew and you could help me. However, with you being so smart, but not having the answer either, where would I go, or what I do? I really believe you, when you said no one is coming with sufficient financial knowledge to save us.”
I almost said to them I can at least explain some things about credit but the young lady said, “I’m going to the bank to see if someone will explain what is a credit rating, why we need one, who is in-charge of it, and why because of a comment on the credit rating you might not be able to purchase a home.”
“I hope you have better luck than I do. I asked my bank and the lady said just call the Credit Bureau. I asked for the number and she said I should Google it. I left feeling so disappointed,” said Theresa.
When I looked at my watch it was time to go but I decided there and then that I would equip all the Theresas’ and Keennas’ out with some questions and answers you need to know.
Here they are:
What is a credit Rating?
A credit rating is drawn from your credit report, which outlines your borrowing, charging and repayment activities. A good rating helps you reach your financial goals. A poor rating limits your financial opportunities.
What is a Credit Report?
A Credit Report is a record of all your past borrowing and repaying, including information about late payments and bankruptcy.
What is a Credit Score?
A credit score is a number between 300 and 800 that measures an individual’s credit worthiness. The Credit Score is based on a Credit Report information.
How is it determined?
Credit Bureaus collect information from the companies that have previously extended credit to you, like a department store, a credit card company, your bank where you have a mortgage or loan. Then based on the report it is then determined if you are a good credit risk.
How to Track it?
You are allowed one free credit report a year. Take advantage of it and check your credit report every year. To check your credit report email http://www.transunion.ca/ or visit http://www.equifax.com/home/en_ca. Your bank will only check your credit report when you have requested credit from them. You are allowed one free report a year, but if you want your credit score attached to your credit report you will have to pay a fee. The cost is $23.95 tax included. It is much easier to use online services, calling on the phone would be very time-consuming.
Why is it important for you?
It is important to know your credit history mainly to avoid surprises, especially when they happen at crucial moments like buying a home or a car. If you find an error you can correct it before you do your purchase.
How to fix it if it is broken?
Make arrangements to pay it back and then begin savings, open an RRSP, a TFSA and Emergency account to avoid the pitfalls of something you did not plan happening. You can’t go back but you can show that you are improving and have changed your habits.
How to keep it healthy?
Pay your bills on time, pay more than the minimum, and borrow only what you can pay off in full every month.
Make an appointment to meet with a Financial Advisor. Remember that credit management is part of Financial Planning; ask you Financial Advisor to help you sort it all out.
Purchase a note book for writing the questions and answers.
Go over the questions before hand to familiarize yourself with them.
Listen and if the words or jargon being used is difficult to understand, ask them to repeat it clearly and slowly.
Keep in touch let me know how you are doing.
Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com