For this week’s Reality Cheque, we’re looking at the money myth that your credit score only matters when you need credit.

By Robert Gerlsbeck

Of course, a good credit score opens financial doors. The higher your score, the more likely you’ll get approved for loans—with a lower interest rate to boot, so you’ll save money. And because we tend to think of those perks only when we’re buying something big, such as a house or a car, or paying for a renovation, it’s easy to assume our scores don’t matter much the rest of the time.

So is it true? Does your credit score only matter for major purchases?

We ran this idea past credit experts. The verdict, surprise: False.

Why credit scores matter for more than big purchases

Yes, it’s true that your morning coffee, the sweater you bought on the weekend, your grocery run and other small purchases you make day-to-day may not have a lot to do with your score. You don’t apply for a loan to buy lunch after all, so no one’s checking your credit score to make sure you can afford takeaway sushi.

But that narrow view hides how often your credit score quietly weaves through other parts of your life.

Who’s checking your credit score?

“Your credit score can make you more creditworthy to others,” so its influence extends beyond large purchases, says Stacy Yanchuk Oleksy, CEO at Money Mentors, a non-profit financial counselling agency in Edmonton.

An employer

Some employers will check your credit history to gauge your trustworthiness, says Yanchuk Oleksy. These include banks and other financial institutions where handling money is part of the job. Law firms and police services, which require legal responsibilities of staff, may also want a peek.

Your monthly debtees

Your credit score can also become a factor when signing up for products and services with recurring bills. Insurance providers, landlords and mobile phone companies may run a credit check before approving you. And if you apply for credit from an online lender, even for a small loan, your score could come into play.

In other words, you don’t have to shop for a car for your credit score to matter.

What is a good credit score? 

In Canada, scores range from 300 to 900 and are tracked by two credit reporting agencies: TransUnion and Equifax. Each uses a similar scoring system but there are differences. Equifax suggests some guidelines to help interpret: a score of 300 to 599 is often considered poor; 600 to 659 is fair; 660 to 724 is good; 725 to 759 is very good; and 760 to 900 is excellent. (If your score isn’t excellent, don’t fret. Few Canadians actually hit that high mark. And competitive interest rates are given to those in the good or very good range.)

Yanchuk Oleksy warns against treating your score as the be-all and end-all. “I think people are often too caught up in their credit scores.”

To get the best sense of your credit history, she recommends getting a copy of your credit report, which contains the information upon which your credit score is formulated. You can order a copy for free from either Equifax or TransUnion. Your financial institution may also provide an overview of your report.

The report lists a recent history of all your credit accounts, such as credit cards and loans, and assigns you a rating for each from 1 to 9, with 1 being the best. When you apply for a loan, credit or mortgage, lenders can use this information to better understand your ability to manage debt and how likely you may be to default on paying it back.

Another piece of the puzzle is how credit scores are assessed, says David Trahair, a financial trainer in Toronto, accountant and author of Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt. Credit bureaus look at several factors in coming up with your number, but a big one is your payment history.

“I tell people to always make your minimum monthly payments, even if you can’t afford to pay any more than that—missing your payment gives you a black mark,” he says.

Trahair dispels another common myth: A high credit score is a sign of good financial fitness. Not true, he says. People with solid credit scores can also be swimming in debt. But, for now, they’re keeping up with monthly payments. A good credit score can even be risky, he says, because it becomes easier to get a credit card or a loan. “Then you’re in more debt, and you might get in over your head.” 

Your credit score and your financial behaviours—not just big spends 

How you use credit ties back to the myth that credit scores only matter when large purchases are involved—not smaller buys. Yes, a single latte doesn’t hurt your credit score, but loading everyday purchases on your credit card and then falling behind on payments will.

“Your credit score is largely based on how you handle consumer debt,” Trahair says. “It’s not about your mortgage.”

Robert Gerlsbeck is a freelance editor and journalist. He is based in Kingston, Ont.

Read more from this issue of The Get:

1. How do you know if you’re paying junk fees?
2. MVP: Actor Raymond Ablack talks movies and TV shows and making it
3. What is a credit card annual fee? What does it pay for?
4. How to train your brain to stop overspending

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