10 things every university student should know about credit scores

By RateHub.ca

We know you always hear the term “credit score” bandied about, but what does it really mean? People talk of it so seriously but how does it actually affect your life?  Here’s everything you need to know:

1. What exactly a credit score is

Lenders want to know how likely you are to pay back a loan before they give you credit. Lenders can include banks, credit card companies, even car lots, gyms and furniture stores. Your credit score is a number between 300 and 900 that tells them how likely you are to repay them compared with other consumers. If you have a high score, you’re considered a less risky borrower who can handle debt responsibly.  

2. Credit scores are different from credit reports

Credit scores are simply a rating system, whereas credit reports are a more detailed history of your credit. Anytime you borrow money, or even sign up for a cell phone contract, the lender sends your repayment information to one, or both, of Canadian credit-reporting agencies: Equifax and TransUnion. Your credit report contains identifying information, payment history and any bankruptcies Checking your credit report annually (free!) is essential to make sure the information is accurate.

3. You can have more than one credit score

Two different credit scores are possible because we have two credit-reporting agencies who use slightly different calculations, and lenders don’t always report to each of them, or, report on different schedule.

4. Your score is based on five main factors

How credit scores are exactly calculated is a state secret. We do know, however that there are five factors your credit score is based on, and they are weighted. From most important to least: how many late payments you have, how much you owe, how long you’ve had credit, the kind of credit you have and how often you apply for new credit. 

5. You can get your credit score for free

Want a free credit score? Only a few years ago you had to shell out cash to find out, but RateHub now offers this info gratis.

6. Checking your own score won't hurt it in any way 

You’ve probably heard that you shouldn’t check your score too much because it will lower it. False! There are two types of credit score checks: hard, which will lower your score, and soft, which has no affect. When you apply for more credit, it’s a hard check. But simply checking your score for informational purposes, like landlords do, is soft.

7. Student loans can affect your score

A loan you take out for a school is a loan like any other. If you make late payments or default it can cause serious trouble for your score. Conversely, paying on time can help build up your credit history and make lenders feel comfortable lending you larger amounts in the future (like for a mortgage). Here’s the full story on can happen if you skip paying your student loans. 

8. Employers and landlords can check your credit

Add this to the list of reason to try to maintain a healthy score: It can affect where you live and where you work. Since a credit score supposedly represents the amount of risk you represent, it makes sense for landlords to check it — they have a vested interest in knowing if you make payments on time. As for employers, reasons vary, but one example is the Canadian federal government. They check it to see if employees could become a security risk because of financial pressure — basically, if they’re susceptible to bribery. 

9. It's actually pretty easy to establish good credit

Having a good credit score is equivalent to being financial responsible: don’t use all your available credit and pay your bills on time.

10. There's no quick fix to bad credit

Just like there’s no easy way to establish good financial habits; building up your credit score will take time. Bad decisions can last up to seven years and it can take a few months of positive changes to see that number climb upwards. But it can be done! Just focus on why you’re having problems with credit and as you work on the basics of budgeting and managing your bills more effectively (don’t throw them in a drawer for months because you’re scared to look at them!) your credit score will naturally climb upwards. 

RateHub.ca empowers Canadians to search smarter and save money by comparing mortgage rates, credit cards, high-interest savings accounts, chequing accounts, and insurance.