Everything You Wanted to Know About Credit (But Were Petrified to Ask)

Another Guest Post from Sean Cooper. Yeh, I am getting kind of slack on my rules.

Unless you’re filthy rich and you can afford to buy your home in cash, maintaining a good credit score is important. Not only does your credit score help you qualify for a mortgage, it can help you obtain the best mortgage rate, saving you thousands of dollars in interest over the life of your mortgage. If your credit score isn’t the greatest, you could pay a higher mortgage rate, or your application could be denied altogether. Not only does a poor credit score make it harder to borrow money, you could have a tough time finding a rental unit, since landlords often look at credit.

Credit has three parts: credit history, credit report and credit score. Your credit history is a lot like your resumé. It’s a summary of any time you’ve borrowed money. From your car loan to that $1,000 cell-phone bill you’d like to forget, your credit history is a tell-all of any time you’ve been extended credit. Your credit report is like an annual performance review of your credit history. This is where the student loan you failed to pay back in college can come back to haunt you.

Last but not least is your credit score. Your credit score is the magic number that lenders care so much about. You credit score is based on your credit history. This number helps lenders decide whether to approve your mortgage. The higher your credit score, the more favourable the mortgage terms will be. Credit scores typically fall somewhere between 300 and 900.

Credit scores don’t just come out of thin air. Credit reporting agencies keep track of your credit history and credit score. You can obtain a copy of your credit report for free, so take advantage of it. The easiest and fastest way is to use Equifax and TransUnion’s interactive phone services. You can also download and complete forms from the Equifax and TransUnion websites. Best of all, it won’t lower your credit score to check. Request a copy of your credit report and find out what your credit score is at least a year ahead of when you’re thinking of buying a home, to avoid any nasty surprises. (If your credit score is poor, you need time to work on improving it. This can take a year or more because of reporting lags.) If you find any inaccuracies or mistakes, get them fixed as soon as possible.

Understanding Your Credit Score

Five main factors affect your credit score. It’s important to understand each of them to help maximize it.

Click here to see those important factors !

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Credit is the Lubricant for the Wheels of Business

Unfortunately Credit and Debt is the opiate of the consumer (to paraphrase Karl Marx, and his views on religion). As long as consumers continue to use Debt, business will continue to rely on it (and the associated expanded spending).  Witness the current economic situation where consumer credit is the lubricant of the economy.

Live Within Your Means ?

Forget that, Grandpa! No one needs to live within their means, when interest rates continue at these historic lows. Next thing you will be telling me is that interest rates will go up? Concepts like house poor seems to have disappeared from our money vocabulary.



Live Now

Interest rates are down now, credit is easy now, so the economy seems to be saying, live now, pay later. You only live once, after all. Can I afford to buy this, is another concept that has disappeared from our financial lexicon. The most important thing is to have a good credit rating.

What would the economy look like if most consumers decided, “I can’t afford that”? The constriction might change a lot of things.

Credit Opiate of the Masses

Credit is Limitless (i.e. Pay Later)

Anyone can get credit now, no one gets turned down for a mortgage, and if they do, you have blundered mortgages, sorry blended mortgages. Have you heard of anyone being turned down for a mortgage lately? Anybody who wants a new car does not get a loan or lease for a pickup truck? Credit is the lubricant on those transactions.

Will we run out of the lubricant? Will debt get tighter soon? All economic models in North America rely on free spending consumers, and tight debt rules would be the sand in the lubricant of the economy.

Remember, eventually, all debts must be paid, but when will that reckoning be? Perhaps sooner than we wish?

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Equifax and Their Information

This was written long before the infamous Equifax Data Breach debacle, the information you get is good, unfortunately the company holding it had very bad security measures.

So thanks to the Home Depot debacle with my account information being pilfered (evidently it is still going on in Canada), however, thanks to that I now have unlimited Equifax reports for an entire year.

Thanks to this, I have found about 4 credit accounts that I must close, as I don’t use them, and my opinion is the less credit vehicles available, the less likely it is that someone could pilfer them.

Fake SIN Social Insurance Number

A very Fake Social Insurance Number

There were two other more interesting pieces of information that I collected from these very interesting reports (I run them once a week, just for fun, and to get my moneys worth).  The first and most interesting piece of information is that Equifax has my first name completely wrong. For those who haven’t figure it out my first name is Alan, however the name Alan has many interesting derivatives and spelling:

  • Allan  (I pronounce as ALL-AN)
  • Alyn (Welsh, and is actually pronounced Al-un)
  • Al (fricken’ heck never call me that)
  • Allen  (I pronounce ALL-EN)

Strangely, Equifax has associated with my correct Social Insurance Number the Allen spelling of my first name?!? To their credit they have my correct name  under their “Also Known As” section, however, I have never been known as Allen in my life.

The other interesting thing on my credit report is that I am evidently still employed by Nortel Networks. For my regular readers, that has not been true for more than 6 years now, guess they don’t know I am a Civil Servant now.

I suppose I am going to have to fill in a bunch of forms to get all this straightened out, but without having this report, I suppose I would never have known?

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Did Shylock Have the Right Idea?

In the Merchant of Venice, Shylock (the alleged villain) is portrayed as a loathsome character (Shakespeare shows how Anti-Semitic the times he lived in were) who wants to exact his vengeance on a “hero”, Antonio, by making the terms of a loan include a pound of flesh if money loaned by Shylock is not paid back by Antonio. Spoiler Alert when Antonio defaults on the loan Shylock never gets his payment, however, I have to wonder, did Shylock not have the right idea?

Click here for a FREE Kindle Copy of this Classic

Currently if I have a credit card, I can borrow money with very few physically painful consequences, other than adding more to my current debt load. Eventually I could get to a point where the credit card company might call a collection agency, and I might have to see a credit councillor or even worse, declare bankruptcy.

Still doesn’t really seem as bad as a pound of flesh, does it? Yes, it’s a terrible thing to live through, but let’s ask the question would anyone use credit as easily if the consequences were as severe?

In the horrible days that were the 1980’s loans were at 19%  and that was for a mortgage, not for silly things like credit cards (which weren’t being handed out like condoms during Frosh week). Would higher interest rates cause a less loosey goosey attitude towards borrowing in the 21st century? Maybe, but 15% for a mortgage and a threat of losing a toe if you miss a payment would certainly lance any housing bubbles quite quickly, and cause most folks to really figure out if they can afford the $500K condo they think they can afford.

Shylock’s only short coming was that he didn’t specify that he wanted a pound of flesh ,”… organs, blood, bone and all”, then again, if you are writing a contract where you are attempting to maim your customer, would the wording really matter that much?

Am I being facetious? Perhaps, but it will be quite interesting to see if (and when) interest rates finally return to a more normal level.

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Credit Repair a Fallacy?

A valid question, can you actually repair your credit (and good name) after you have “gone off the rails”? I think the answer (as usual) is maybe, but it will most likely never be like your original credit profile.

Not The Best Thought Out Plan

I guess that is Kind of Repaired?

If you have had your identity stolen, or some other nefarious event happen which has caused your good name to be dragged through the muck and slime, it may be possible to get back to a relatively clear name (again, I am not positive on this one), however, if you have simply gone off the rails, and let things get away from you, Credit Repair won’t get you back to “good as new”.

Much like with your car, if you have a major accident you can repair your car so that it works again, but it will not be like the car you first bought, and if there is lethal damage that just cannot be cured (at least not in a short time), much like a bent frame in a car can rarely be repaired.

If you have declared bankruptcy, you are not getting your Credit Rating or Good Name back to Lilly White in a long time.

Is it worth paying to get credit repair? I suppose it depends is an answer on that as well, but if you have had everything “go pear-shaped” in terms of your credit (by your own hand), then maybe what you need to do is figure out how to live without credit for a while. If you have somewhere to live, then living on cash and what you make might be better than trying to get your “Credit Rating” back in line. My guess would be that Credit Repair is something you do (if at all) a good while after you start living within your means.

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