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Basic Finances for Youth, Part 1: The 411 on Your Credit Score

Many of our older youth have told us that they have tremendous challenges with handling money and understanding basic finances. This new blog series aims to assist youth with these challenges, offering easily understood information on a range of financial topics from credit cards to banking to loans. We use the word “score” in many different contexts. “I scored a goal in the game.” “I scored a free app for my iPad.” “Money under the couch cushions…score!” Let’s not forget about a really important score—the kind that refers to your financial history. Your credit score rates the health of finances at a particular point in time. Why is a credit score so important? Why do you need to make sure it is healthy? Well when banks or other lenders consider whether to give you a loan, they look at your credit score. It tells them how risky it would be to lend to you compared to other consumers. Do you know what your credit score is? Or how to check it? Read on to “score” more information. A credit score is a three-digit number that summarizes the info in your credit report. So while your credit score is based on your credit report, it is not a part of your credit report. What does this mean? Well basically, you must go through two separate processes to get your credit score and credit report. More on that later. Your credit score is very important because it determines how likely you are to receive a loan or mortgage when you ask for one. On top of that, lenders may use it decide how much interest you will have to pay on your loans. Here is a list of some of the factors that can affect your credit score (note these aren’t all weighted equally when determining your score):

  • If you have missed a payment on any of your debts
  • If you carry a balance on your credit card(s) from month to month
  • What the limit is on your credit card(s)
  • If you spend close to your credit limit
  • How long you have had credit
  • The type of credit you are using (i.e. only credit cards vs. a mix of loans and credit cards)

This may seem rather complicated, but there is a simple rule that applies to credit scores. Like most scores out there “the higher, the better.” Higher numbers mean a lower likelihood of defaulting on a loan (being unable or unwilling to pay back a loan) or going bankrupt (legal status indicating that a person or organization cannot repay their debts). Credit scores range from 300-900. Anyone with say a score between 750-799 has a very low chance of defaulting in the next few years. This means that they will likely get the loan or mortgage they want. Not so for those with lower scores. To view an example of what a credit score looks like click on one of the two links from Canadian credit-reporting agencies: http://www.fcac-acfc.gc.ca/eng/resources/publications/budgetMoneyMgmt/CreditReportScore/ExTransUnionScore-eng.asp (TransUnion) or http://www.fcac-acfc.gc.ca/eng/resources/publications/budgetMoneyMgmt/CreditReportScore/ExEquifaxScore-eng.asp (Equifax) If you are anxious to learn what your credit score is, don’t sweat it. You can get a copy of your score really quickly—both Trans Union and Equifax offer real-time access online. Unfortunately, it will cost you some moolah. Trans Union currently charges $22.90, slightly less than Equifax’s price of $23.95. On the bright side, these costs usually include a free online copy of your credit report. To score a copy of your credit score online go to: http://www.consumer.equifax.ca/home/en_ca for Equifax (you will get a copy of your credit report and credit score) or http://www.transunion.ca/ for TransUnion Canada (again, you can get both your credit report and your credit score) To learn more about credit scores go to: http://www.fcac-acfc.gc.ca/eng/resources/publications/budgetMoneyMgmt/CreditReportScore/CheckCreditReportScore-eng.asp#checkreport

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