When it comes to checking your credit score, it's like Googling your name only to find your oldest social media profile is still live, with your embarrassing haircut from seven years ago on display for the world to see. We get it, that sucks, but the reality is our whole life seems to be plastered on the internet, including our credit rating, and more times than not, we're shocked to see either of these.
Your credit rating is a powerful tool, a composite of who you've been throughout your life and how you've made decisions, even if you're only 19 years old. How is that fair? Did you know your credit score is compounding? The credit history compiles while your credit score itself will eventually rebound from an occasional missed payment or overdue bill. The entirety of your credit report is taken into account when you apply for credit products and different types of loans. Your credit limit impacts credit card applications, student loans, auto loans, etc. It's yikes from us! If you are young and like most people, chances are you haven't been paying attention to your credit. Let us help you understand why you should start right now.
The Lovely Credit Bureaus in Canada
The credit bureaus in Canada that compile and track your credit history are Equifax and TransUnion, with the Fair Isaac Corporation (FICO) score as an alternative. These bureaus use different scoring systems to rank your history and the relative importance of what's included; they even offer free credit reports. It's not likely to rank your missing library book exceptionally high, but it's important to understand who is looking for what and why especially when it's time to work with a Canadian lender.
Two Types of Credit Checks
Whether or not dealerships (and the financial industry at large) would have you believe it, your information is meant to be accessible. Your credit score indicates a lot about your general responsibility in life and can act as a background check. Employers may even do a soft credit pull when making final decisions about which candidate qualifies best for a job! Your credit score speaks to how you handle your business every day and should show a history of your improvement. There are two types of credit checks, hard and soft. A hard check, or hard pull of your credit, will look at the full history of your credit usage. A soft pull acts as a background check and can be authorized by you, potential employers or landlords, and even credit card companies!
Hard credit checks are an official review that you have to authorize personally. You've authorized a potential lender to determine what size of a loan you can handle based on how timely you've paid existing and past bills and debts and whether or not your history shows any derogatory marks. The banks will want to see how much credit you're able to juggle at a time and how long you've been able to successfully do so. This hard check ultimately determines a lender's confidence in you, and that confidence dictates everything about the loan you might receive. High confidence in lending leads to borrowing greater amounts of money with less interest accrual over time.
To prepare for a hard inquiry of your credit history, you can easily access your credit rating with a soft credit check of your own credit anytime. CreditKarma and TurboTax are two institutions that will help you monitor your credit score. While the banking system may profit from loopholes and fine lines, it is especially wary of consumers trying to do the same. It's good to keep an eye on your score to understand what kind of loans and credit cards you may qualify for when the time comes. This is especially helpful when looking at vehicles, as dealers make their money on selling you a vehicle before offering you a finance package. At FFUN Cars, we aren't big on tricks, so we make it easy for you to access your pre qualified financing rates. Plus, no impact on your score but a high impact on your shopping empowerment! You don't have to be buying a car today to use our one-of-a-kind algorithm; we're only interested in helping you know more and buy better!
The Nitty Gritty: Soft Credit Check vs Hard Credit Check
Let's get down to it. Each time you authorize a lender or institution to do a hard check of your credit, like when you go to a dealership, and they make you an offer for a financing package, that lender leaves an official review, called a single inquiry, on your history for other institutions to see. Disclaimer! This gives major scam vibes, especially if you are 'just shopping around for rates. Suddenly your good credit score has taken a dive, and your interest rates are increasing with each new credit application. Multiple inquiries over a short period affect your overall credit score and work to decrease lender confidence, regardless of the type of inquiry. Statistically, it is riskier to lend to someone applying for new credit than to someone with a solid payment history. According to FICO, consumers with five or more hard credit inquiries in the past 12 months are 6 times more likely to default on an obligation. Six or more credit inquiries in a year is a red flag of bankruptcy!
The best way to think twice before allowing that hard pull is to have a good idea of what will be coming on the history report and what that history means for you, brass tax. This is where the soft check is vital. Soft credit inquiries are different from loan applications and don't affect your scores because they're not associated with a specific application for credit. You can get a soft pull of your own credit report on sites like CreditKarma, Experian, and TurboTax. These help you monitor for fluctuations in your rate and illustrate the positive effects of on-time payments. They can also alert you to identity theft. Nothing is more helpful than seeing how your score breaks down into dollars and cents, which is why prequalifying tools (like ours!) are vital to your success when shopping for a new credit card, vehicle, or home. Rates offered in qualification may not be the final terms, but understanding how your score impacts the loan you are eligible for will help you shop within your budget.
Hint! Your credit history counts! When you're starting out, your credit history is thin, and you'll likely receive higher rates and terms on loans than you'd hoped for. Don't be discouraged! Think of these loans as starter loans that help you conceptualize your budget. Maybe you're paying an excessive amount of interest to rebuild derogatory marks on your credit report. This enables you to choose a car with a lower sticker price; maybe you compromise on a few features. Six months to a year of on-time payments at that higher interest rate could improve your rate so much that the following year you find yourself purchasing the car of your dreams at a price you can afford. High-five to that! It's all about leveraging your history and your score. Banks want to be in the business of lending to good borrowers, and they want to see participation in the borrowing game! No one got anywhere from sitting on the sidelines; credit is a game intended for you to win when you watch. Paying attention is key. FFUN Cars can help! Let us break down your budget and credit score into digestible rates and terms at no cost to you or impact on your credit score.
Mama said, "pretty is as pretty does," and while the relevancy of that trite may have waned in certain lights, the meaning translates well into your credit score. By positively engaging with your credit, it will help to gradually increase the amount you borrow from the bank with timely payouts. The more confidence you instill in financial institutions, the more likely they will give you higher loan amounts at lower interest rates. FFUN Cars works as a middle-man to a variety of lenders, so we can find the right line of credit for your creditworthiness and can even put you on a good track to rebuilding your credit if you've neglected it. We can prequalify you in moments (like a two-minute moment) with a soft check only! No need to worry about stacking up inquiries. FFUN Cars financing can be translated to any car in our inventory to find the right vehicle for you and within your budget. Bonus, you'll set yourself up for a future of successful borrowing.
Key Takeaways
- Get your free credit score today! Stay on top of your personal finances, don't wait to know where you're at and how you can improve. Problems with your credit history do not just go away; it is a participatory relationship to grow your credit rating. Step one is paying attention.
- Be wary of applying for multiple lines of credit within a short period. Seek out personal loan providers who are willing to take the time to explain their process of securing a loan for you, and make sure you want the final product before any numbers are issued against the bank.
- If you're just shopping around to see how your credit score actually metabolizes into real numbers, use FFUN Car's awesome qualification tool to see what your rates could look like on an auto loan today!
- Don't get too down on yourself if your credit score isn't perfect. You're human, and you're not alone. After all, it's not like this stuff is taught in high school. You can always get your score up; it just might take some time. At FFUN Cars, we're not just about cars; we're about you and helping you in whatever way we can.
