What is Credit and Why do we need it?


Without Credit many individuals, families and businesses would likely not be able to purchase high priced goods and/or services (like tuition, cars and real estate etc...) that are typically out of reach in the short term and take a life time to save up enough money to purchase out right in the future. If credit did not exist, economic growth and advancement would be drastically reduced.

We like to recommend the #1 book out there to help clients rebuild credit and learn more about what they never taught us in school!

“The 9 Rules of Credit by Richard Moxley” - You can get it here —> https://amzn.to/2TpH4zg

So what exactly is credit and why do we need it?

Credit is the leverage of borrowed goods or money today in order to make deferred payments back with interest over time to eventually pay off the initial balance in the future. This allows for growth and fulfillment in the present in order for families to have things such as homes and businesses to purchase various assets to grow much faster.

But, there is a problem with leveraging credit in today's world, people and businesses are over leveraged causing their expenses from debt to out grow their income coming in, therefore causing people and businesses to go into default due to the in-ability to repay their debts and forced into a proposal or even worse: bankruptcy (which stays on your credit history for 7 years). Talk about 7 years bad luck for breaking a mirror! This just means that lenders are less likely to lend to you again until this time period has passed before you can start re-building your good name again.

When credit first became a commonality, the world needed a way to judge the riskiness of borrowers being able to repay back their debts to the people or institutions who lent to them and this is where Credit Bureaus such as Equifax and Trans Union came about.

When a borrower enters into an agreement with a lender for borrowed money, they are now obligated to pay back that loan with interest on the agreed upon terms and conditions and make regular payments; These payments will get registered with the Bureaus that I mentioned above every month whether you made them on time, late or never and form part of your credit score between 0-900. 900 Being perfect credit and trustworthiness and 0 being least reliable.

Bureaus look at your Credit account and calculate your credit score by the following factors based on your past credit history: 

  1. Payment History - 35% of your credit score comes from your payment history which includes things such as bankruptcy, proposal, late payments etc..

  2. Amounts owed - 30% of your credit score is derived from how much of credit balance is still out standing to be paid back to the lender.

  3. Length of Credit History - 15% of your score is determined by how long you've had a credit line item open.

  4. New Credit - 10% of your score is calculated by how many inquiries and new credit lines you have open.

  5. Types of Credit - the last 10% of your score comes from the various different types of trade lines you have open (for example: Credit Card, Mortgage, line of credit and other loans etc..).

We understand that that don't teach us about the credit system in school, but don't let credit scare you!

Here at Live Rent Own, it is our goal to help individuals and families in London Ontario and surrounding areas get into that home that you've always wanted to live in, first as a renter and working your way to qualifying for your own mortgage to purchase it out right with the help of our Mortgage and Credit professionals who will be with you throughout the Rent to Own term to keep you on track for success!

If you are interested in seeing if you qualify for our Rent to Own program, please complete a qualification form here: APPLY HERE.