Montreal Ouest, QC

Credit rating is the means of assessing the credit worthiness of individuals, companies, states and countries. It indicates the ability of the debtor (individual, company, state or country) to fulfill his financial commitments. Credit rating can refer to personal, corporate or sovereign credit rating. Personal Credit Rating: In the US, creditors use a scale of 0-9 in order to rank a debtor. The numbers can be preceded by the alphabets R or I. I refers to credit that is repaid in installments (like mortgage on a house), while R refers to a system of revolving credit (credit cards), whereby the debtor is only required to make minimum monthly payments.

R1/I1 means that the debtor repays his debt in one month, while R2/I2 means that he repays within 2 months. R7/I7 indicates a situation wherein debts are paid by consolidation. R8/I8 implies that debts are recovered by repossession. R9/I9 is the worst rating and indicates the inability to repay debts.

Credit Report and Credit Score: Information about credit inquiries, bankruptcies, liens, judgments or collections is sent to the credit bureaus, which prepare an individual's credit report, and assign credit scores. A person has 3 credit scores assigned to him by the following bureaus: Equifax, Experian and TransUnion. While these scores may differ, the underlying principal is the same.

The credit bureaus calculate scores based on the credit scoring system created by Fair Isaac Corporation (FICO) in the year 1958. Credit scores computed by Experian are called 'FICO or FICO II', scores calculated by TransUnion are called 'Empirica', and credit rating computed by Equifax are called 'Beacon'. Fair Isaac Corp. has also developed the next generation FICO scores, which are meant to be user friendly. The FICO advanced risk score is used by Experian, while TransUnion uses Precision, and Equifax uses Pinnacle, to calculate credit scores. Credit bureaus also assigns weightage to the following factors while calculating credit scores: 30% to previous credit performance, 30% to current indebtedness, 15% to the use of time of credit, 15% to the types of credit available, and 5% to new credit.

FICO scores are fast gaining popularity over the R/I multiple rating system. Hence, we can discuss the importance of good personal credit rating from the perspective of maintaining good FICO scores. What is a Good Credit Rating for an Individual? Credit ratings for an individual range between R0/I0 and R9/I9. 9 is the worst rating while 0 would mean that a person has no credit history. Credit scores for an individual are generally in the range of 360 and 850. A score below 620 is considered unhealthy. The worst score, of course, is 360 and the best is 850. Higher the credit score, lower the risk of a person defaulting. A poor credit score/credit rating would result in lenders charging a premium for providing loans. If the credit score/credit rating is very poor, lenders may refuse to provide credit. A credit score between 650 and 690 is considered good, while a score above 700 is considered optimal, by the lenders.

If Shakespeare's Hamlet were a 20-something living in Toronto today, chances are he'd be working on his first career. He'd have some inheritance in the bank, he might even be living in his mother's basement. He'd have little job security, no pension and would probably be soliloquizing about the same dilemma as everyone else his age: To buy or not to buy, that is the question; Whether 'tis nobler on the pocketbook to suffer the outrageous rent, or to take up a sea of mortgage payments, and by doing so, retire with equity.

With interest rates at the lowest they've been in more than 50 years and with home and condo prices in decline for the first time since 1996, many potential first-time buyers are viewing this as their best chance to buy into an otherwise unaffordable market.

That's partly what led Ren Ramkhelawan to buy his first highrise condo near Bathurst St. and Lake Shore Blvd. Ramkhelawan, a 27-year-old systems architect with a local charity, reckons he spent $18,000 in rent on his one-bedroom apartment at Spadina and Bloor Sts. After feeling he was "flushing rent down the toilet,"

Ramkhelawan started looking for a condo in October 2007 but was soon priced out of the market. "I'd make an offer and then the seller would get more offers, and before long it was just beyond my price range," he remembers. At one point in his search, he'd actually negotiated the purchase of a 500-square-foot condo for $222,000.

But he backed out because he felt it was too small and he'd be better off in his larger apartment. A year later, the economy had tanked, taking the condo market with it. He's now the proud new owner of a 700-square-foot, $227,000 condo. Though he's paying $200 more per month on the combination of condo fees, mortgage payments and property taxes than he was at his old $980-a-month apartment, he feels he's getting a better deal. "In the end, I wanted my own place. I wanted to know that I was investing in something instead of just handing my rent money away."

But Ramkhelawan, like many other first-time owners, doesn't see himself living in the condo for more than three years, when he plans to flip it and make a profit. Problem is, many in the realty business argue Ramkhelawan and others are banking on returns from a world that no longer exists. "Everyone wants to flip houses and condos like pancakes," says Greg Stanley, a mortgage broker. "Maybe we should have a change of view, thinking that a house is actually a home like they did in the old days. Back then, if you bought a house and sold it, it would be the same price. No one expected the houses to go up in value; they only expected to pay them off." The Organization for Economic Co-operation and Development recently released data that show house prices have fallen in Canada, but prefaced it with the view that such prices "will have to fall still more ... if affordability, measured by the ratio of house prices to income, is to return to its long-term average."

If that's the case, then first-time buyers who choose to jump into the market now could see themselves carrying a hefty mortgage on a depreciating house. Anyone who bought a home when the market peaked in 1989 watched their "investment" plunge when the housing market tanked months later. Those homeowners still haven't recovered the pre-bust value of their homes two decades later, if you factor in inflation. "There's so many myths around real estate," says James McKellar, a professor of real property development at York University. "Let's not forget that before the 1980s, the motto was that a home was a money pit. Over a long period of time, housing does not keep pace with inflation. Don't look at it as an investment.

A house is a cost. You don't buy a car as a good investment – you buy because you need it." "The conditions (for buying) are favourable in terms of interest rates and affordability, but that's just one concern.Remove Formatting from selection "The decision to buy depends on your personal circumstances – that includes your personal needs and how secure you are in your job situation. Ask yourself: is your ability (to pay down a mortgage) going to be the same in a few years time?" The results may surprise you as, in some cases, those who rent and invest the money they would have otherwise thrown into their mortgage come out on top in the long-term. That said, a home is an asset and having to pay off a mortgage forces you to throw your savings into something instead of wasting your money.