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Winnipeg Free Press - PRINT EDITION

Monitoring your credit's health

By: David Christianson

Posted: 01/7/2011 1:00 AM | Comments: 0 (including replies)

So, here I am on the Equifax website, looking at my actual credit score and the factors keeping it from being higher.

The good news is, according to Equifax, "It is extremely unlikely that your applications for credit would be turned down, based on your score alone." So I did OK.

That's reassuring. However, I am still a little way away from a perfect score of 900.

Why is your credit rating important? Let's look at the potential value of monitoring your credit score on a semi-regular basis.

If your score suddenly changes, that can be a clue to identity theft, and someone setting up accounts in your name, using your credit and not paying it back. Since this usually means you have to pay it back, an early alert would be helpful.

The second reality is mistakes get made on credit reports, and you want to fix a mistake on your account before it prevents you from getting a preferred rate on a loan. Or denied credit outright.

A credit report gives you your credit score, tells you how that score ranks in the population, tells you how likely it is that your score will negatively affect loan applications, and shows your credit history, so you can check for accuracy. It also tells you who has been accessing your credit report. Make sure this has only been institutions that you have authorized.

Some of the reports will also give you insights into how to improve your score.

Reports can be requested from TransUnion or Equifax for $15 to $24, with greater analysis at the high end. You can also get free reports faxed to you.

Ideally for these agencies, they will sell you the $15-per-month credit-monitoring service, which includes identity-theft insurance. I've been using this, and I receive a monthly email assuring me there's been no suspicious activity in my accounts.

Be cautious about other offers for free credit reports from other organizations, although I have no reason to believe they are not legitimate. Just keep in mind the personal information you give them to request your credit report is a gold mine for an identity thief. However, most of these organizations simply want to sell you the legitimate monitoring service.

What makes up a credit score?

Your credit rating is based on a number of factors, and is measured by a "FICO" score, named for the software developer. Your score could range from 300 to 900, but a score above 850 is extremely rare. For lenders, the score has powerful predictive capabilities, as a score above 750 means the chance of "delinquency" is below two per cent.

Payment history is the single most important factor in your credit score. Like any good relationship, it takes years to build trust, and this trust can be dashed with any late payment.

In order to have an exceptional credit rating, you have to have used all different types of credit and managed it properly. This includes instalment loans with regular payments (both mortgage and non-mortgage) and revolving loans, including credit cards and lines of credit. The credit bureau wants to see a history of all of these to move you toward a "perfect" score, but will penalize you if you have too much credit available to you on a revolving basis.

This is credit that can be carried forward month to month and get out of hand, as opposed to loans with regular required monthly payments.

Credit history (slightly different from payment history) is also important, as are the number of new credit applications and types of credit used.

From my observation, scoring high means using lots of credit responsibly, and only using a fraction of the credit available to you, while not having too much money outstanding on a revolving basis.

Obviously, step one is to make all payments on time, no matter how small, and then be patient, as improvements will take time.

Have a terrific 2011, and resolve to be credit-healthy, and also more physically active. I want to live longer, and with more vitality.

David Christianson is a fee-for-service financial planner and portfolio manager at Wellington West Total Wealth Management Inc. He can be reached at

dchristianson@wellwest.ca

Republished from the Winnipeg Free Press print edition January 7, 2011 B4

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