I was asked by a friend to explain in plain english what "GOOD" credit is....So here it goes...
Good Credit is credit that lenders can actually "SEE" on your credit report when you apply for a loan or mortgage. Paying cash for everything, and trying to avoid having credit cards and loans and lines of credit is totally admirable, but does ABSOLUTLEY NOTHING to build you good credit.
To establish good credit most lenders tell us they want you to have at least TWO credit accounts such as a credit card, a loan, or a line of credit, and EACH of these accounts should have a limit of $1,500.00 or more. These accounts should also have been in existence for 2 years or more...And you need to pay these credit accounts ON TIME, as well as keeping your balance(s) owed to 60% OR LESS of the approved limit at all times.
Why? Well lenders want to see your repayment history of your credit accounts in black and white, and credit cards, loans etc. all get reported directly to Equifax, Canada's credit reporting agency. Equifax compiles your personal and credit information and produces a detailed report that gives you a "Credit Score" based on how often you seek credit, how much you owe on your credit accounts, your repayment history of those accounts, basically trying to compute your overall creditworthiness as compared to other Canadians by giving you a number rating.
So what constitutes a "GOOD" credit score? Credit or "Beacon" scores as Equifax calls them, range from 300-900 points...in the lending world anything under 600 is considered "weak" credit, a score of 620-680 is considered "average" credit (80% of all Canadians score in this range) and anything above 700 is considered good credit.
So, what should you do to build an excellent credit rating and credit score?
1) Limit the number of credit accounts you have, 2 as a minimum, but please refrain from applying for every department store card or credit offering that you don't need.
2) Try to keep the balance owed on revolving accounts like credit cards and lines of credit to 60% or less of the approved limit
3) Make your credit payments ON TIME each month, or better yet, pay your accounts in full each month if you can. This way you are not spending money you don't have. Carrying a balance on a credit card is a very costly way to borrow money...so don't do it if at all possible.
Your credit score is probably the most important number (or grade) you will ever be given, so do everything in your power to build, and retain an excellent credit rating.
I guarantee you will need it someday!
With 27 years of direct mortgage lending experience, first with a major bank, then a local credit union and now as a Mortgage Broker, I have arranged mortgages on almost every type of property imaginable....even a 50+ ft fishing trawler!!