Keeping Score with your Credit

5x5 Credit ScoreWe finished our three-day business program today, the one that was postponed from last Saturday due to the weather. The big “wow, I didn’t know that!” moment came when we were talking about credit scores.

I don’t pay much attention to my credit score; it is what it is when you are working here and there, not holding a steady job since 1997 because of giving birth and taking care of kids. But today, I learned about something that may affect my score negatively without me realising: forgotten, unused credit cards.

Apparently I wasn’t the only one in the group who had a credit card, but never used it and thought nothing about it. My story is a simple one, one many others may have.

Once upon a time, I had a credit card. A few years later, I was offered another card from a different company. They were giving away a special gift just for signing up, so I did. Who doesn’t love a gift?

A few years afterwards, I got another card from a different company for the same reason: a gift. Like all creatures of habit, I used the credit card I always did to make purchases and only occasionally used the other two. My credit rating with these companies rose, and in turn, they raised my spending limits.

Fast forward to a few years ago when I wanted to reduce the number of cards in my wallet, I paid off balances, cut up the cards and forgot about them. I never thought I would have to concern myself with them again.

Until today.

Credit Scores are the numbers given to individuals to correspond with their credit history, making you either a good candidate for a loan or a terrible one. A high score means you’ll get the loan and lower interest rates. A low score may mean you may never get a loan.

Here’s part of the complicated equation they use to create a Credit Score for individuals. These forgotten, uncancelled cards mark a liability on your score card.

In other words, if your limit on the paid-off, cut up credit card you haven’t used for two years is $5,000, it puts you $5,000 in debt.

Hard to believe isn’t it? I still can’t wrap my head around it.

The philosophy of the credit scorers is that if you have a limit of $5,000 on your credit card (regardless if you use it or not), at any moment, you may go out and make purchases enough to total that amount, putting you instantly in debt.

This negatively affects your credit score.

Also, if you use your credit card regularly and if your limit is $5,000, then your debt is still $5,000 even if you pay it off each month, according to the Credit Score keepers. You might start asking yourself, “Do I really need a $5,000 limit? Can I get away with $1,000 instead?”

This is Credit Scoring in Canada. I’m not sure how it works in the United States.

If you are serious about building your Credit Score, then take a look at those forgot cards and the excessive limits companies place on the cards you do use.

Our counsellor recommended we check our Credit Report every two years. The information the companies hold on us is free for our viewing. We have the right to see it.

Two Reasons to Check Your Credit Report

  1. Mistakes: The system is not perfect, and mistakes have been made in the past. Ensure someone’s mistake is not holding back your credit score.
  2. Identity Theft: You can see if someone else is trying to borrow money using your name.

How to Check Your Credit Report

Contact one of the two big credit report-keepers in Canada and request a copy of the information they have on file for you. Equifax is the one recommended.

Two Methods to Obtain Your Credit Report

  1. If you are impatient and have money burning a hole in your pocket, you can request to see it electronically online. Simply click the link on the home page below Get Your Report, complete the registration form, verify your identity, pay $23.95 and view your file. You’ll have to provide your Social Insurance Number (SIN) online, so if you are uncomfortable about doing this, go to #2.
  1. You can request to have your Credit Report mailed to you through Canada Post. It’s free! Click free credit file below Other Credit Services and print the request form. Two photocopies of ID must accompany the request. Do not send originals. Providing your SIN is optional.

Read the complete terms to see if you are happy with them before you complete and mail the form.

This DOES NOT give you your credit score, only your credit report. The report will detail any activities with regard to your credit. If you went to the bank to get a loan, the bank checks your credit. This will be noted on your report. If you didn’t pay that bank loan last year, that will be there too.

If you want your Credit Score, it will cost you $11.95, and you can request it on the same form, near the bottom.

I wish my brain was being filled up with story ideas rather than silly, useless such things as Credit Scores, but unfortunately, sometimes it matters…but most times it doesn’t when you are as small in the world as me.

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