What Makes Up A Credit Score?

Last month I wrote an article about how to read your Credit Report.  Since then, I’ve had a few people ask me about the credit scores themselves.  It’s an important topic, so I hope the following can help everyone understand how the credit bureau agencies create your credit score.

In Canada there are two credit bureau agencies that collect credit information and establish credit scores: Equifax and TransUnion.  Every time you apply for credit and make or miss a payment on a bill, that company reports that occurrence to the credit agencies.  With that information the credit agencies determine your credit score.  A credit score is a 3 digit number that represents your borrowing and repayment history, with 300 being the worst and 900 being the best.

What influences your credit score?
The credit agencies use a formula to determine your credit score.  This formula takes into account the following:

Choosing an Executor and Guardian

A couple of weeks ago I wrote an article about how to help your loved ones or executor find the information they need in case you have an accident.  It is important to have that set up, but I had a few people ask me about what an executor actually does.  I hope to answer that and what a guardian does as well as both will be involved in case of an accident.

What is an Executor and how should I choose one?
An executor is the legal term for someone who carries out the direction of a will and handles your financial affairs after your death.  Usually the person (or company) is selected and named in the will, a topic which you should discuss with your family and lawyer before you pass on.

Debt or Investments First?

I often get asked: “Which is more important, investing or paying down debt?”  Usually my answer is "Both."

Let me qualify that, the most important priority is paying down high interest debt like credit cards.  Credit cards often have interest rates ranging from 18% to 28% which has a tremendous negative impact on where your money is going and can make it impossible to invest in yourself.

Once you have the high interest debt paid off, then you should split your disposable income between paying off debt and investing.  This balance can serve you well no matter what happens to the rates.  If the rates go up, your term deposit and savings account earnings increase.  If rates go down, you will be able to pay down debt more quickly.  Over the long term (more than 10 years) you will see the benefit of doing both activities.  Even if you are investing in mutual funds or stocks, over the long-term reinvesting dividends will help your investments grow, while your loan payments steadily pay down your debt.

The real point is that you want as much time as possible for compound interest to work on your investments while steadily paying down your debt.  Jerry

Monopoly is More Than a game

Teaching kids about finances is important to me.  I believe that too many kids grow into adults with very little knowledge and almost no skills concerning money management, and end up buying things they really can’t afford and then paying for them at high interest rates for a long, long time.  I hope that the information in this blog can help both parents and youth learn something that will make their financial lives easier.  While I know money isn’t the point of life, I do think it helps make some parts of life a little easier.

I’ve been thinking for several months about how to make a board game that can help my kids understand some financial lessons about saving and investing money.  They are already quite good at spending it, although we are working on the idea of quality and value.