44 - Develop a good credit rating

Reason for this Goal:       Establishment of a good credit rating is important to be able to borrow money from the bank.   One of the most important reasons to establish a good credit rating is to be able to finance the purchase of your first house  or to start your own business.  It is the ability to borrow money from a lender to be able to access goods or services now, but pay for them at a later date (with interest).  

Your credit report is a record of how you manage your credit obligations. This data is analyzed and used to calculate your credit score. It is important to improve your credit rating if it is currently low. 

Depending upon where you live and the credit system you are under, a score can range from 300 to 900, with the higher the score being better!   

Your credit score is a number that lenders use to help them decide whether or not to extend you credit. It represents their risk assessment related to whether or not they can expect you to repay their money borrowed, according to the agreement you sign with them.

In Canada where I live, the two main credit bureaus are Trains-Union and Equifax. 

How is my credit score calculated?

From my own bank's on-line information, they report as follows:  

To calculate a score, numerical weights are placed on different aspects of your credit file and a mathematical formula is used to arrive at a final credit score. TransUnion calculates your credit score based on many factors in your credit history and payment behaviour, including but not limited to: 

  • Your track record for repaying your loans and credit card balances (PAYING ON TIME is IMPORTANT!)
  • How much money you currently owe on your credit accounts
  • How long your accounts have been open
  • The different types of credit you use or credit mix
  • How much credit you use compared to the amount of credit you have available
  • How often, and how recently you have applied for credit

While the overall purpose of credit scores is universal, each lender will use his or her own criteria to measure an individual's credit worthiness. 

Some lenders also use their own internal credit scores when evaluating an application. The only way to find out about how they measure your creditworthiness is to ask the individual lender.

There are many places you can go to learn about credit scores, and there are courses taught by experienced professionals on how to systematically improve your credit scores.   Demonstrating a solid history of paying down your credit obligations on time, such as a credit card, is part of establishing your good credit rating. 

Being able to borrow money to earn money, whether through passive investments (stocks, mutual funds, etc.) or active investments (real estate, business) is important to your financial success.

Suggested Goal(s):   Develop a credit score of __ or above.

Your Outrageous Goal:  Maintain an A+ credit score throughout your working life.

Return to financial goals.

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Last updated: June 14, 2022