Your Credit

How important is Credit Rating?

When you in the market for a loan, mortgage, or credit card, your personal credit report is one of the primary tool lenders use to make their decision. Did you know that 47% of credit reports are reported to have inaccurate or missing information, which in some cases would have resulted in higher interest rates or even declined credit? Here is some information about how to assess and manage your credit.

• How can I know if I am a good credit risk?
• Figuring out your debt ratio
• How can I maintain good credit?
• What can I do if I feel that I am a victim of credit/identity fraud?
• Order your Credit Report Online today.

How to assess if you are Credit Worthy?

There are many factors that affect your Canada credit worthiness. They are:

• Payment patterns
• Amount of each account and the balance owing on each account
• Number of credit accounts and the history of the accounts that are open
• Types of credit
• How often and how recently you apply for credit

There is another way to determine if you are a good credit risk. That is by determining your debt ratio. Mortgage lenders generally won't approve your loan if your mortgage debt would exceed 28% of your income. Your total debt ratio -- including all other debts -- should not exceed 36% to qualify for a mortgage.

These debts don't include food, utilities or taxes that you pay. For these calculations, mortgage lenders look at items like credit card bills, student loans and car loans and how your mortgage would affect your overall ability to pay.

Calculating Debt Ratio

List all your bills in one column. In the second column list your monthly payments. In the third column list your balance due. Of course, credit cards don't have a monthly payment so use this option: Estimate your monthly payments as 4% of the balance. In other words, if you owe $1,000, list your monthly payment as $40 ($1,000 times .04.) Now you must figure your monthly income. Start with your gross annual income, which is your income before taxes. Add to that -- also on an annual basis -- any other income such as investment earnings, child support, alimony, Canadian Social Security benefits, and freelance income from consulting. You should not include any overtime or bonus money unless it's guaranteed. If your income is based on an hourly wage, multiply your average weekly pay check by 52 weeks to come up with an estimated annual income. Be sure to use the gross income figure, which is your weekly income before tax.

Now divide your monthly debt payments by your total monthly income. So, if your total monthly income is $2,500 and your total monthly debt payments are $850, your debt-to-income ratio is $850 divided by 2,500 or .34, which is 34%.

How to maintain Good Credit?

It is very important that you maintain a good credit profile. The best time to do this is once you get your first credit loan. By paying your bills on time, paying off your bills in the time required and by not overextending your credit debt you can be assured a good credit standing. Avoiding bad registered items, collections and judgments will prevent warning flags arising during a credit check. It may be very difficult to obtain credit if you have filed bankruptcy within the last seven years or else you may have to pay excessive interest rates. Reviewing your credit report annually will help detect inaccuracies, which if allowed remaining on your report may affect your credit rating. Also, it allows you to check for possible identity fraud.