The Black Entrepreneur's Journal Issue IV

What is your CREDIT SCORE?

Learn the Importance of Building your Financial Identity with Credit

With Ayo Oladmeji

It is no news that we live in a credit-based economy, but interestingly people either shy away from accessing credit or simply do not understand the consequences of not having a good credit score. The question is, what is your personal/business credit score and why do you need to keep it up?

Your credit score is a three-digit number that represents the likelihood that you will be able to pay your bills on time. Statistics Canada defines a credit score as “a number that expresses your credit information at one point in time. It indicates the risks you represent for lenders, compared with other consumers, on a scale from 300 – 900. High scores on this scale are good. The higher your score, the lower the risk for the lender”.

Some of the mistakes that affect the overall credit health of people and businesses are related to missed or overdue payments, taking out in-store credit cards, forgetting to review your credit report, carrying a balance month to month, ignoring loans in the collection, etc.

The credit bureaus Equifax and TransUnion, which are the two major consumer credit bureaus in Canada, compile this information about your financial history in the form of a credit report and provide it to banks and other lenders as one of the ways to help assess your creditworthiness.

Building your credit score requires financial discipline and the right information about how the credit system works. Some pertinent reasons why you should build your credit and credit score are listed below:

1. It can be a major game changer as it is an important factor that lenders consider and rely on when reviewing your loan application and creditworthiness

2. With good credit, you have easy access to capital

3. You can qualify for a low-interest rate when you borrow

4. A poor credit rating can stay on your profile for years and can prevent you from getting your dream job or access to a desired rental apartment

5. You do not want to botch your chances of accessing funds when you really need them, such as securing a mortgage or accessing capital for your business growth.

Your credit score is evidence of how responsible you are with your personal and business finance. If you have a bad credit rating, the good news is, it can be fixed. The right information and knowledge are key. To better understand how your credit status can either affect you positively or negatively, it is recommended that you seek professional guidance. A financial advisor or organizations like Canadian Imperial Advantage (CIA) can provide you with guidance and credit counseling services to achieve your personal and business goals.

To build and improve your credit score rating and avoid them plummeting, consider adopting the following habits:

Avoid shopping around too often for credit.

Refrain from taking a new debt before making major purchases.

Build a credible credit history by using your credit and repaying it promptly.

Be diligent to review your billing statement and correct detected errors promptly.

Honor the agreed payment terms to your vendors and suppliers.

As a business entity, be sure you pay your taxes to Canada Revenue Agency (CRA).