How To Establish & Strengthen Credit
Having good credit is an important factor when it comes to approving you for a mortgage. Many people believe they have great credit but they don’t know what goes into having a great credit score and how to maintain it. Having good credit allows us to help you get into the house you want at industry best mortgage rates.
The 5 main factors used to calculate your credit score are:
-Payment History (this is the most important factor when it comes to your credit)
-Use of Available Credit
-Length of Credit History
-Number of Inquiries
-Types of Credit
Know Your Bureau
The first step in building or re-establishing your credit is KNOW what is on your credit report. It’s better to see what’s on your bureau in order to make sure it’s accurate and up to date. In Canada the burden is on YOU to prove a discrepancy on your credit report. We often see clients that have outstanding debts showing on their credit bureaus’ but were paid of years ago – they just never confirmed it was closed and reported.
The reporting agency we use is Equifax and they can provide you with a copy of your bureau HERE
Pay Your Bills on Time
It may sound silly that we have to remind you to pay your bills on time but this is the BIGGEST factor in calculating your score. If you can’t pay your credit card bill on time how can you pay a mortgage payment on time? Making a credit card payment even one day late will hurt your score. If you’re paying online, send the payment at least three banking days before it’s due to allow enough time for the transaction to be processed. Setting up a small automatic payment to your card issuer each month will ensure you never forget to pay at least the minimum.
Don’t Close Old Credit Cards
The older the credit card the better – The longer you have kept an account open the more it positively affects your score. Even keeping a zero balance can help improve your credit if your score is low. Unless there is something terribly wrong with that account, closing an older account will again reduce the average age of your accounts.
Never Exceed Your Limit
If you’re close to being maxed out, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and will hurt your score each month it happens.
Spread Out Your Spending
The percentage of available credit you’re using each month affects your score, so it’s better to have two charge cards at 50-per-cent capacity each than one that is maxed out. Try dividing your cards for certain things – one for gas, one for emergencies etc.
Get Only What You Need
Opening new accounts just for the sake of it or because it was offered will lower the age of your existing accounts and again bring down your score. (Wow 500 Air Miles to sign up! Why wouldn’t I!)
Don’t lease a car, sign up for a new cell phone and apply for multiple credit cards all in the same month or two. The bureau sees this as a sign of financial trouble.
Building or re-establishing your credit can take time. Derogatory items on your bureau will last for 6 years – the older the collection or late payment the less it affects your score so be patient! The longer you use your credit responsibly the better.
Having only one card with a $1000 limit and no balance might seem like a great idea to make sure you have great credit but that is not the case. Lenders want to see that you can handle the responsibility of more credit even if they have a small or no balance.
If you have had problems in the past getting credit due to a bankruptcy or consumer proposal you can save up for a secured credit card. These allow you the advantages of a credit card and help build credit but are secured by money you have deposited to the card issuer. Many of these are accepted by our lenders but check with us first so we can steer you in the right direction.
Credit Myths: You’ll have to read our previous blog for those!
Worried about mounting debt and how it might be effecting your credit score? Lets look at refinancing to help!