Credit Fitness

Credit Fitness &  Mortgage Information

How to improve your Credit Score!

What is Credit?

Credit is such a common part of our lives, you might not realize how often you use it. Do you phone friends or family long-distance? Do you heat or cool your home? Have you bought a car? Anytime you buy something or receive a service without paying cash for it immediately, you're putting credit to work for you. Credit can make a real difference in your life, helping you to get something when you want it, or more importantly, when you need it.

A credit report is a profile of your financial life that's compiled by a credit reporting agency or credit bureau. A credit bureau receives and maintains records on anyone who's ever applied for credit. Each month, the credit bureau receives updates from creditors about the bill paying habits of their customers. Your credit file may contain your:

• Age
• Social Insurance Number
• Marital status
• Current and former addresses
• Employment history
• Information from public/court records, such as judgments or bankruptcy
• Credit accounts, including the date each was opened, the amount and balance, the status of the account, your pattern of payment, and the date of the last activity on the account.
• The number of inquiries about your credit history, as well as the date, and the name of the company making the inquiry

The information is sold to creditors, employers, insurers, and other businesses, so the information contained in a credit bureau report is very important. Defaulting on a loan may stay on your credit record for up to seven years; declaring bankruptcy may stay on your record for up to ten years.

It's a good idea to know exactly what's contained in your credit report. You can obtain a copy online or contact one of these major credit bureaus.

Most lenders look at the five "Cs" of credit before granting a loan or issuing a credit card:

Character is a reflection of your stability and willingness to repay credit obligations. Have you used credit before and paid it back on time? Is your application completed accurately and honestly? Have you moved or changed jobs often?

Capacity is a look at your earning power, current income, and credit commitments. Can you really afford a loan now?

Capital is your net worth (the difference between what is yours, free and clear, and your debts). This includes an in-depth look at your total financial situation, including the value of your home and other assets.

Collateral is an item of value you own that can be promised to the lender. If you don't repay your loan, the lender has the right to take your collateral. By pledging collateral, you can sometimes get a large loan or lower interest rate - that's because you're more likely to pay back the loan when something you value is at stake, so the lender may be taking a smaller risk.

Conditions include the national and local economic picture. Are there lots of layoffs or are employers hiring more people?

To get your credit established, you may wish to start small and get a gas or store credit card. The key to maintaining your credit is to make sure you pay your bills on time. For a bill to be considered "on time," the payment must reach the company by the due date. If it's only postmarked by the due date, it will likely be considered late.

Some lenders will make small loans of a few hundred dollars to first-time borrowers. Always make your payments on time and pay off the loan, and you'll be well on your way to establishing good credit.

Sometimes it's easier to get credit for the first time if you have a creditworthy cosigner -- a relative or friend who signs the application and loan agreement with you. Your cosigner must repay the loan if you don't.

The most important thing to do to maintain good credit is to pay all your bills and loan payments on time. Slow or missed payments will be seen as a sign that you may have trouble handling credit.

Paying at least the minimum amount of your bills each month will help your rating. If you can't do that, contact the creditor to talk about the situation. The worst thing you can do is miss payments, which can badly damage your credit rating in a short time.

Unfortunately, it's very easy to overextend yourself financially. Credit cards can lead to impulse buying because you feel like you have more money than you do. Or you might be laid off or become ill and be unable to pay your debts. The most important thing in these instances is to ask your creditors for help. Most will be willing to set up a new payment schedule to fit your situation. They'd rather receive part of the money now than none of it.

The best way to stay out of credit trouble is to set up a budget and stick to it. Most people in trouble are spending much more money than they earn each month. Perhaps a debt consolidation loan could help. This kind of loan gives you money to pay off all your other bills. You then pay back the amount you borrowed to one lender.

When applying for credit, it's in your best interest to know and understand your rights. Various provincial and federal acts -- such as consumer protection acts, cost of credit disclosure, and human rights legislation -- forbid creditors from discriminating against any applicant on various grounds including race, creed, ethnic origin, gender or marital status.

When applying for credit, be aware of discriminatory practices such as:

• Denying credit due to change in marital status
• Not considering child and spousal support as income
• Refusing a person credit because of the credit rating of the spouse (unless it's a joint account)
• Refusing to consider a spouse's income when a couple applies for joint credit
• Demanding financial information about a spouse when the applicant is individually creditworthy
• Terminating or revising terms for a credit transaction because of a change in the applicant's name/marital status (as long as no change has occurred in the borrower's willingness or ability to pay.

Personal loans can be obtained to help you buy a new car, a computer, take that dream vacation or pay off several debts. Here are some examples of types of personal loans and loan information that you should know.

Secured versus Unsecured Loans

When you apply for a loan, you may be asked to provide some sort of security or collateral. If you can provide security in the form of a car or property, it means that the creditor may obtain whatever was established as security in the even you are unable to make payments and if the loan cannot be renegotiated. Often with unsecured loans, the interest rate may be higher, or the loan may be more difficult to obtain in the first place because of the perceived higher risk that must be taken on by the creditor.

Quick Definitions

Secured loan: A loan that is made safe, or backed, by marketable values (collateral).

Unsecured loan: An unsecured loan or debt is a personal loan in which no collateral is pledged. The only evidence of an unsecured loan is a signed Note.

A home equity loan: This loan puts your home to work for you. By assessing the value of your home, minus what you owe on your mortgage, the remainder may be available to you in the form of a loan (certain conditions and restrictions apply).

Refinancing loans or consolidation loans: These loans pay off your creditors, leaving you with just one payment to manage. Your interest rate may be reduced in some instances, which could lead to a lower monthly payment.

Retail and sales finance loans: When you purchase a product on a retail sales program (such as no payments for 12 months, same as cash, etc), that purchase is made possible by a financial institution. If, at the end of that term you are not able to make the agreed payments, the financial institution will provide you with a personal loan or revolving balance.

How do I establish a credit history?
If you do not have credit history, you may wish to start small. Having a utility bill in your name and a retail store credit card will help you establish a credit history. Always paying these bills on time each and every month will improve your credit history.

A simple way to ensure that you make your payments on time is to sign up for automatic withdrawals on the due date. This will prevent the creditor from receiving your payment past the due date. In most cases you can choose to have the full amount or the minimum amount deducted from your account. Even the minimum amount deducted monthly will help your credit rating. You will also save on the hassle of writing and mailing cheques each month, or scheduling your online payments so they are processed on time.

What can affect my credit history?
Consistently late payments or missed payments will negatively affect your credit history and may result in your being denied credit - even if you are just a few days late. Having too many credit inquiries will also affect your rating, as will a declaration of personal bankruptcy, an unreliable employment history or even moving residents several times in a short period of time.

What types of assets may qualify as collateral for a loan?
You may wish to use your house or other property in your name or your car as collateral for a loan. These items are viewed as security for the creditor; the creditor may take possession of them if you default on your loan.

What are some reasons I may be turned down for a loan?
Often your credit history is why you are turned down for a loan. If you are viewed as a risk, and your report indicates that with prior creditors you consistently made late payments or skipped payments or defaulted on a loan, it will affect your score and may result in your being turned down for the loan.

What does an inquiry for a loan do to my credit report?
Each time you apply for a loan with a financial institution, they look at your credit report, and that inquiry goes on your report and will negatively affect it if there are too many inquiries within a short period of time.

What is a consolidation loan and how does it work?
A consolidation loan allows you to pay off several creditors and pay the balance to one creditor. This simplifies making monthly payments and can possibly reduce interest rates, so you may end up paying less than what you would have paid without the loan.

When should I ask for a co-signer for a loan?
A co-signer adds security for the bank or financial institution that provides your loan. With a co-signer, you may have a better chance of being approved for a loan. That's because your co-signer agrees to make payments on your loan if you default. A friend or relative can act as a co-signer.

What should I know about loan insurance?
Loan insurance is meant to protect you and your family in the event that you cannot make your payments on time due to a qualified disability, the loss of your job, etc. Rates and coverage will vary, but you will be protected and the insurance company will make your payments. Policies may include life insurance, disability insurance and involuntary unemployment insurance, and are often subject to terms, conditions and policy limits.

If you take out a loan, it is a good idea to ask about, and to consider getting, Creditor Insurance. You can obtain insurance coverage for a variety of circumstances including involuntary unemployment, illness, accident, disability and death. Depending on which coverage(s) you elect and the circumstances, the insurance company will make your loan payments under the agreed upon terms. Creditor Insurance gives peace of mind to anyone who has a loan or credit card, to ensure that his or her family and dependents are protected from unexpected financial difficulties caused by death, accident, sickness, or unemployment.