Everyone knows that they should maintain a good credit rating in order to qualify for loans. In some cases it will also help get you a “preferred” lower rate. However, how to achieve and keep a good rating continues to be a mystery to many people. I often hear “My credit rating should be good as I always pay my bills”. This is an important factor BUT definitely not the only one. You can still have a low credit score despite paying your bills. Here are the top tips that I tell my clients:
1. Get some credit – There is a segment of the population that never uses credit. They have no credit cards, have never applied for a loan and pay for everything in cash. Good right? Not necessarily! Without a history the loan grantor has no track record to base there decision on. It is easy for everyone to say “I always pay my bills” but without any “proof” it is just your word. So go get yourself a credit card or two. You can use it sparingly but it will give you a rating over time.
2. Too much credit is bad – On the other side of the spectrum from people who have no credit are the ones that believe that the more credit facilities they have the better. They may have a dozen credit cards, a number of loans, etc. “I must have a great credit rating cause all these places keep giving it to me”. Having a small variety of credit instruments is good for the rating (if used responsibly) but TOO MUCH can be detrimental. Not only can having too much credit available lower your credit score but some lenders may apply a payment to each credit facility even though you have nothing outstanding which may mean that your loan could get declined due to high service ratios.
3. Do not apply for credit all the time – Each time your credit is viewed by a credit grantor it is tracked. If a number of enquiries are done in a relatively short period of time this may lower your credit score. For example, if you go from lender to lender looking for a quote on mortgage rates and you apply at a dozen lenders this will lower your credit score. Best thing to do is make the enquiry BUT do not apply until you are sure that is the one you are going with.
4. Make your payments on time – This is fairly obviously but it amazes me on how many don’t or assume certain things. For example, you do not have to pay off the entire balance on your credit cards each month (you should so as to not pay the high rate of interest) but you do have to make the minimum payment by the DUE DATE. The DUE DATE is when the credit grantor must receive your payment by and NOT the date you pay it. If you pay bills via bank machine this may mean 3 days or more before the payment is received by the credit grantor. So if you make the payment on the due date and it takes 3 days to get there, you are late. This may affect your credit score.
5. Ensure your info is up to date – If you move or change your phone number ensure that all credit grantors are notified immediately. This way if there is a problem they can easily get a hold of you.
6. Check your own credit – You should check your own credit on a regular basis. I suggest maybe once or twice a year. This way you will be able to take care of any erroneous information on the report. Also, with identity fraud on the rise it will reduce the possibility of you being a victim. The two largest credit reporting agencies currently in Canada are Equifax and Transunion .
I trust you will find this information useful. It is not a hardship to maintain a great credit rating but it must be nurtured.
Comments welcome as always.
