Apr 142014
 

What is a credit score? It’s a number typically ranging from 300 (low) to 850 (high) that represents the likelihood of someone paying back a loan on time, based on that person’s past credit history.

Why is it important? Banks use credit scores to determine a lender’s credit worthiness. If someone has a low score because he’s been late on his payments before, then lenders will either refuse to give him a new loan, or agree to lend him money at a higher interest rate, to compensate for the extra risk.

How is the credit score calculated? Broadly speaking, it’s based on 5 factors with different weighting. See breakdown below.

14-04-creditscore credit score

How do you increase your credit score? Improve the 5 variables that make up the credit score.

  • Credit Searches: Everyone is entitled to one free credit report per year. Hard pulling your credit history too often could raise red flags and decrease your score.
  • Types of Credit: Have a wide range of different types of debt. Types include mortgage, car loan, credit card, line of credit, student loan, etc.
  • Length of Credit Accounts: The older your credit accounts are, the higher your score will be.
  • Credit/Debt Ratio: Try to keep this ratio below 50%. But ideally it should be under 25% for the best possible score. For example, don’t keep a balance higher than $2,500 on a credit card with a $10,000 maximum credit limit.
  • Payment History: Always pay the bills on time and always pay at least the minimum amount.

Where to find your score. You can request it from any of the three large credit bureaus:  Experian, Equifax, and TransUnion. Credit reports are generally free and can be obtained either through the credit bureau’s website or by letter request, but you may have to pay a fee for the score itself. Alternatively if your bank recently pulled your credit history you can ask your financial advisor or another banking representative. They will have your full credit report on file, including the score ;)

What’s the typical credit score? In the United States, the median score was 711 in 2011. The proverbial “subprime mortgage crisis” in 2007 got its name because banks were lending to borrowers with credit scores below 640, which is seen as the dividing number between prime and subprime. Typically individuals with subprime status, or credit scores below 640, have trouble meeting their debt obligations.

This means you should keep your own credit score above 640 at the minimum. A score between 700 and 750 would put you in the same boat as most other people. And a score over 750 would give you the lowest interest rates on the market for your next mortgage or auto loan :)

Do companies have credit scores too? Yes, but they’re referred to as credit ratings. And instead of a number, companies receive letter grades such as AA, or AA+ for prime and credit worthy businesses, to C or D for more risky borrowers. Credit rating agencies who grade businesses include Moody’s, S&P, and Fitch. Entire countries can be graded as well. According to S&P Canada has the highest possible sovereign credit rating of AAA :D

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Random Useless Fact: Computer programs can be so inconsiderate sometimes.

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dat frown :(

Apr 122014
 
        Knowledge is power, but just knowing alone cannot lead us to victory. We must also take action if we are to succeed :) I’ve presented dozens of financial strategies here over the years, such as my investment last week in Dollarama. Many readers have told me they appreciate all the tips I share. But one thing that I can never give to my readers is the confidence to take that knowledge, and turn it into something real for themselves.
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        This is because the only person who can give you confidence is yourself :D This is why financial literacy is so important for every individual. It gives you the confidence you need to make wise judgements and take control of your finances.
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        If someone proved to me that they have consistently made huge profits from trading copper futures, will I jump in head first? Probably not. That’s because I haven’t done enough research on the futures market yet to build up the confidence I need to decide whether or not that’s a good idea for me.
Apr 092014
 

Last Fall I made some bold predictions that low interest rates are staying until 2016, which will keep the housing market stable. I also suggested that investing in parts manufacturers like Magna International would be a profitable venture due to the consumer’s love for cars :D

Fast forward to today and it looks like events are unfolding thus far :) The Prime lending rate is still at 3%, unchanged from last year. Mortgage rates have not moved higher. Home prices have not corrected. And Magna International’s stock price is now 25% higher since last year’s post.

14-04-magnaint Low Interest Rates

Anyway, the International Monetary Fund (IMF) recently published their growth projections for countries in 2014. Canada’s economy is expected to grow at 2.3% this year, lower than that of the U.S. at 2.8%, and the U.K. at 2.9%.

So we must create a plan to make the best of this current economic situation, because if we fail to plan – then we plan to fail ;) The following image demonstrates the importance of planning ahead. Can you figure out what’s wrong with this sandwich?

14-04-sandwichmayo Low Interest Rates

Today I will make some more predictions :) I think the overnight lending rate in Canada, currently at 1%, will increase to 1.25% in 2015. And by 2018, it would only be at 1.75%. Since rates are going up so slowly I would continue to own instead of rent, because I think the national average real estate price will move higher in the next few years :D

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Apr 072014
 

I’m pretty confident that there will always be a healthy number of frugal people in this world. So last Friday, as some of you may already know, I purchased 15 shares of Dollarama Inc (DOL). Each share was purchased at $87.61 for a total investment amount of $1,324.

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This is a dollar store chain with over 800 retail locations across Canada. The reason I decided to invest in this company is because I’m really impressed with how fast it’s expanding, and don’t want to miss out anymore on that growth. It’s also a recession proof company. There are frugal consumers when times are good, and there are even more of them when times are bad. So Dollarama has a very solid customer base that is not going anywhere. Here’s a look at how much profit Dollarama made in the last several years.

2010 – $73 million
2011 – $117 million
2012 – $173 million
2013 – $217 million
2014 – ??? (not released yet)

That looks like a pretty good track record of growing profitability to me ;)

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Apr 052014
 

Remember last year when I explained how investing in coffee businesses was an awesome idea? Well good news, because it looks like the daily grind is paying off ;) One of those companies, Tim Hortons (THI), recently increased its dividends from $0.26 to $0.32 per share!

That’s a 23% dividend increase! Holy hamburgers! That’s amazing eh (゜∀゜) I only bought 20 shares of Tim Hortons at $50 per share, so all it took was just $1K of my personal savings to make this happen. Ain’t it great that we don’t need a ton of money to start investing :) The first payment under the new increased rate was distributed last month. Here’s a look at what that dividend payment looked like for me.

Capturetim Tim Hortons

If you buy your doughnuts or coffee from Timmy’s I would like to say thank you on behalf of all Tim Hortons shareholders :D Without loyal customers like you, this company would not exist today. I look forward to receiving another $6.40 in June, and so on and so forth until the dividend is raised again! Aw yiss :D Collecting passive income is so exciting \(^_^)/

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