Credit 101

Credit Score

Credit. Essentially, it’s your financial score card that the business world uses to determine whether or not they should lend you money, give you a credit card, rent to you, insure you, or even employ you. Your credit score tells whoever’s inquiring how good you are with your money. This score can range from 300-850 points, and the higher the score, the better.

Sounds like another thing to worry about, right? Not to fear; here are a few simple things that you can do to help your credit.

Do:

1. Pay your bills on time. 35% of the score is based on your ability to make payments on your car loans phone bills, lines of credit, etc. in a timely manner. If you make payments later than 90 days after the date due or have a payment go through to collections, your score can be affected.

2. It’s good to have credit available for a long time. The longer you have accounts the better this looks to a potential lender.

3. Don’t owe more than 90% of your available credit. Creditors want to know that you aren’t maxed out all the time.

4. Having different kinds of credit is good. A mix of mortgage, car loan, student loan, and credit card is better than credit cards alone.

5. Try not to have your credit checked if you can help it. Each time your credit is checked, it can take up to 20 points off your score.

I know it can be challenging to be financially wise all the time, so here are some quick tips to ensure your credit is working for you.

Don’t:

1. Only pay the minimum payment. The minimum payment usually covers the interest (depending on your rate) and balance protection insurance you get charged each month. Paying off more than the minimum, whether a little more or a lot, will eventually make a meaningful dent in your debt.

2. Carry a balance. This creates a perpetually overdue account. Not good.

3. Ignore bills completely or live with maxed out credit cards. You guessed it, this is even worse than just making the minimum payment.

4. Apply for loans all over the place trying to get someone to approve you. Chances are, if one lender turns you down, most will. Work at restoring your credit for 6 months, then try again.

5. Apply for bankruptcy or default on your mortgage. Avoid these scenarios at all costs. The word “devastation” comes to mind when I think about what these options will do to your credit. Specifically, it can take anywhere from 3-7 years to have these accounts removed from your credit bureau, which is a long period of purgatory.

 

 

If you have any questions about your credit, how to check it, or how it affects your mortgage, leave a comment or send me a message.

Lisa Last – Pro Mortgage Solutions – lisa@promortgagesolutions.ca