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A credit score is used by financial institutions to determine how risky it is to do business with you. It gives them a picture of how well you manage your money because it’s based on information pulled from the lenders you do/have done business with.

The better the credit score, the more attractive you can be as a client. And this means you’re more likely to qualify for that loan or mortgage you’re applying for, or even to get a preferred rate or term.

So How Does it Work?

The first time you borrow money, a credit rating report is created. They are maintained by credit reporting agencies and include whether you’ve paid your bills on time, whether you’ve missed payments, and what your outstanding debt is. Over time, this data will form a pattern of how well you pay — or don’t pay — your debt. Information appearing on your credit rating is kept for several years, which may vary depending on your country.

This is why it is important that you pay all of your bills on time, even the ones that seem small and insignificant. And even if it is just the minimum payment. Regularly staying on top of your bills reflects a good pattern of behaviour.

If you often — or even sometimes — miss bill payments, this can negatively impact your credit score. And a lower score means you’re less likely to qualify for financing down the road. If this is a concern, consider setting up automatic transfers on payday so you don’t let a payment slip by.

Your credit score is your score. If you keep on top of your credit information, and maintain good credit habits, you’ll benefit in the long run.