To follow up on my previous post about maintaining your credit score, I decided it would be good to give a snapshot of how Canadians are doing in regards to keeping a higher, less risky credit rating.
The Financial Post published an article today that summarizes the statistical findings. FICO, the U.S. credit agency shared that 25% of Americans have a credit score below 600 and anyone with a rating under 600 is considered a high risk to lenders. TransUnion (one of two credit reporting agencies in Canada) determined that from 2005-2009, fewer Canadians have been scoring above 720 and more ratings have dropped below 660.
Most of the discrepancy between Canadian credit scores and those of the Americans has been as a result of the financial crisis. In many areas of the US, people have been able to walk away from the debt on their homes without affecting their assets or income. To them, the hit on their credit report is often worth leaving a house that has dropped to a value lower than their current mortgage loan.
However, it is not only the crisis that has cause such a large difference between Canadian and American credit scores. The two countries’ general attitude towards debt also differs a lot. In many U.S jurisdictions, people are able to deduct mortgage interest payments from their income taxes. As a result, may Americans prefer to carry a higher debt load in order to offset their annual taxes. This is reflected by the comments of an economist from the Bank of Montreal. He suggests that Canadians have an average of 67% equity in their home, meaning they have paid that percentage of their total loan amount. On the other hand, Americans tend to have than 40% equity in their homes.
As the dust settles from the financial crisis, and things slowly return to normal, hopefully each country will have learned something from the other country’s successes, as well as the failures.While financial institutions seem to be forging ahead and promoting consumer savings, the low interest rates still promoting spending on borrowed money.