Benefits of a Good Credit Rating

Thursday, February 14, 2013

Most people have some vague understanding of the importance of their credit rating, but few of them understand the exact benefits of a positive credit score or even know how to check it.

If you have borrowed money, like almost all Canadian adults have, you have a credit report. Your credit report contains the details of every loan you have taken out for the last six years, how much you owe and whether you typically pay on time (which can mean either monthly or as agreed). Your credit score is a numerical representation of the details in your credit report. The higher this number, the better your overall credit score - from 300 which is poor to 900 which is perfect.

The two primary credit unions in Canada are TransUnion and Equifax. A third, Rent Check Credit Bureau, collects information from landlords about the payment history of their tenants. Once you have provided proof of your identity, they send you your credit report for free. Your credit score, on the other hand, costs between $20 and $30.

The benefits of a good credit rating include the following:

  • A good credit score indicates that you pay your debt on time and that you are, accordingly, a lower risk to lenders. In some cases, such lenders might be willing to lend you money at a lower interest rate. The next time you have to borrow money to buy a car or a house, you will appreciate a good credit score.

  • If you need to rent a property, the landlord will compare your credit score with those of other potential tenants and choose the one that is the lowest risk to her.

  • Some insurance companies give their clients with high credit scores insurance at better rates. They equate a good credit score with a more responsible person that is likely to be a lower risk to them.

  • A person with a good credit score is always in a good bargaining position. Remember that banks, insurers and other companies want your business, and if you have a good credit rating, they want your business even more. So if you have a good credit score, inform whoever you want to do business with and find out whether you can negotiate for discounts.

  • Those with good credit scores can often get away with providing less documentation for deals they want to make. This provides some protection against identity theft and helps you maintain some privacy.