Rita Arora has been practising dentistry for three years and wants to purchase a practice in her neighbourhood. She has met Dr. Norman, the owner who will soon retire. Rita is excited at the prospect of becoming the principal dentist and practice owner. However, she first has to get approved for a bank loan.
During dental school, Rita used a bank loan to help her pay for tuition. She also signed up for five credit cards on campus and accumulated a $6,000 balance, $5,000 of which was used to finance a trip to Jamaica. She made the minimum payments, only missing the due dates a few times. Rita continues to pay off her debts in minimum payments, but wonders if any of this will have an impact on her loan.
The lender at Rita’s bank will research her financial history to determine what kind of borrower she is. Unfortunately, her lender along with three others turn down her application for a loan: “Your poor credit score along with other factors are preventing us from lending you money at this time.”
Dr. Norman accepts an offer of purchase from another dentist and wishes her well. “I am confident you will one day have a practice you can call your own.”
In Rita’s case, each time she applied for a credit card, the ensuing credit check affected her credit score. She also made late payments and used more than 35% of her available credit. These factors all added to the risk of loaning her money for the practice purchase.
Unfortunately, a poor credit score can affect many aspects of your life, such as a denied loan or mortgage, denied rental accommodation and higher home and auto insurance premiums.
Fortunately for Rita, Dr. Norman was right. She purchased a practice three years later, after re-building her credit history and improving her credit score. A Certified Financial Planner® (CFP®) professional also helped her budget her expenses and pay off her debt. Now, Rita’s CFP® professional and an accountant are working with her to ensure her practice remains profitable.
Work with a CFP® professional at CDSPI Advisory Services Inc. on a no-cost, no-obligation financial plan for your life situation. Call: 1-800-561-9401 or Email: email@example.com
To learn what steps Rita took to re-build her credit history and improve her credit score, check out our four-part series on “Credit Report and Score Basics.”
A credit score is a three digit number ranging from 300-900, which is determined by a mathematical formula and based on information in a credit report.
Understanding your credit report and score: What is a credit score? (Financial Consumer Agency of Canada)
Use less than 35% of your available credit. Your credit score is affected by how much of your available credit you actually use, not your credit limits. If you use a large percentage of your available credit, lenders will see you as a greater risk, even if you pay your balance in full when it’s due. Understanding your credit report and credit score: Use of available credit (Financial Consumer Agency of Canada)
A credit report is a summary of your credit history, which is created when you use a credit card, take out a personal loan or take advantage of a “buy now” “pay later” offer.
Understanding your credit report and score: What is a credit report? (Financial Consumer Agency of Canada)