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If you’re obsessive about your credit score, you’ve got it all wrong

It's not often that people need to be faulted for paying excessive attention to their finances, but this is absolutely the case with credit scores.

The growing fascination with credit scores is a sign of how routine debt is now. We used to dread borrowing; now, we want to be good at it.

I noticed this in talking to university students at some financial literacy sessions I did with The Globe and Mail's personal finance editor, Roma Luciw, last month in the Halifax area. The level of knowledge about credit scores was sketchy at first. But as we discussed it, questions poured in like the tide.

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"It's not just students," said Laurie Campbell, CEO of the non-profit credit counselling agency Credit Canada Debt Solutions, when I mentioned this phenomenon. "I find people are unusually obsessed about their credit rating. It's almost like a passing grade. People equate it to greater opportunity for wealth, and greater opportunity for credit."

Don't misunderstand – a good credit score is important. You need one to get loans, mortgages and lines of credit at decent rates. Landlords may also look at your credit score when considering you as a tenant, and employers may do likewise in evaluating you as a job applicant. Read more about that here.

But a good score comes from being a responsible user of credit over the years. Checking your score regularly won't help you. What will is paying what you owe on time over a period of years and limiting your overall borrowing.

Hype about credit scores has been stoked in recent months by the online lending outfits Borrowell and Mogo (they're best used as a borrowing solution for people carrying ongoing credit card balances). Borrowell offers free updated scores every three months if you create an account, while Mogo offers free monthly credit score updates. On its website, Mogo shows a range of credit scores from bad to "rock star."

Checking your credit score is a fine thing to do, and the same goes for your credit report. Your score is your credit history distilled into a three-digit number, while your credit report is a record of your borrowing, employment and places of residence. Mistakes crop up in these histories, so do take a look every year or so. Credit reports can be ordered for free, while a credit score costs $23.95 if you order it online from Equifax Canada, one of the country's big collectors of credit data. Making the request has no impact on your score.

As for obsessing about your credit score, it's a sign that you're putting too much emphasis on debt as a tool of wealth creation. Blame the housing market for that kind of thinking. Rising house prices in some cities have legitimized the idea of taking on a big mortgage. Debt has never been more acceptable, even encouraged. In that kind of environment, it's natural to want to do all you can to improve your score as a borrower.

But being a good borrower actually means being credit shy. "All you need is one all-purpose credit card," Ms. Campbell said. "You pay it off in full, every month, and your credit rating will be just fine."

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Want some extra homework to build up your credit score? Ms. Campbell suggests a $1,000 registered retirement savings plan loan, where you use your tax refund to help pay down what you owe within a year. "I don't believe in borrowing for the sake of borrowing," she said. "But this will help you establish your credit rating, and it's a good investment."

Ultimately, what lenders want to see from you is a pattern of stability established over several years, Ms. Campbell said. Limit the number of cards you apply for, don't max out the ones you have and avoid repeatedly missing credit card or loan payments. One missed payment on its own is a blip.

Mogo says on its website that your credit score fluctuates day by day, "so it's a good idea to check up on your score regularly." Sure, check how the Blue Jays are doing on a regular basis, and look at the weather outlook as well. But regular monitoring of your credit score suggests you're missing the point about debt. Borrow intelligently and your credit score will take care of itself.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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