Why Maintaining a Good Credit Score is Important - Bankruptcy Canada
Having a good credit score means you can borrow at favourable rates. However, it goes deeper than that.
If you do not have a good credit score you will not be able to get a credit card.
You need a credit card, in order to rent a car, even if you are going to pay the bill in cash. Shopping on the Internet is growing at phenomenal rates, but if you don’t have a credit card you cannot shop.
A poor credit score can mean you cannot buy a car or furniture on credit. Getting a mortgage at favourable rates to buy a house will not be possible without a good credit score.
How a credit score is established.
Credit Bureaus have a nine point scale is as follows:
R0 Too new to rate; approved but not used.
R1 Pays (or paid) within 30 days of billing; pays account as agreed.
R2 Pays (or paid) in more than 30 days, but not more than 60 days, or one payment past due.
R3 Pays (or paid) in more than 60 days, but not more than 90 days, or two payments past due.
R4 Pays (or paid) in more than 90 days, but not more than 120 days, or three or more payments past due.
R5 Account is at least 120 days overdue, but is not yet rated 9.
R6 (Code 6 does not exist.)
R7 Making regular payments under a consolidation order or similar arrangement.
R8 Repossession (indicate if it is a voluntary return of merchandise by the consumer).
R9 Bad debt; placed for collection; skip.
The FICO® score.
The FICO® score, developed by Fair, Isaac (the pioneer in credit scoring) is a number between 300 and 850 that lenders use to determine your credit rating. A FICO® score is a snapshot of your credit rating at a particular point in time. The higher your credit score the more likely you are to be approved for loans and receive favorable rates. Credit score is a figure which is generated by an algorithm which is based on the information in the credit report, as compared to the information on millions of other people.
How to Improve Your Credit Score
Let’s say you have the worst score possible and you have just been discharged from bankruptcy. You can develop a good credit score in two years if you follow this advice.
- Have your bankruptcy discharge certificate at hand.
- Check the credit bureaus to see if there are any errors on your credit report. You can get a free credit report by using this form. Errors happen quite frequently. The credit bureaus will correct errors. They will not remove information that is factual. Use this form to correct errors.
- Get a secured credit card to start to rebuild your credit.
- Always pay your bills on time. Never, never be late.
- Get new credit after a few months for purchasing an RRSP or a car.
You will find that in about two years your credit rating should be in a healthy state.