We’ve always been told “ we need to build and protect our credit “. But most of us were never taught how! My goal is to help with that.
These days, it’s easy to track your credit – with various sources to provide that information to you. Unfortunately, there isn’t any consistency between them. For instance, if you look up your credit score on Equifax, and on the same day you check Trans Union Canada. You’ll more than likely see two different scores. The differences could even be significant. You may be wondering “why”? CBC News conducted an investigation on this called “Why 4 websites give you 4 different credit scores and none is the number most lenders see”.
For the sake of this however, I’ll focus on what you can do to build and maintain your credit score – effectively making you more attractive to lenders.
Pay Your Balance On Time
Surprised? I think we all agree this is a no brainer. But are you fully aware of the REAL due dates?
Say for example, you hold a credit card with CIBC. And CIBC says your balance is due on the 15th of the month. If you transfer funds from your CIBC chequing account to your CIBC credit card, then it’ll be processed in the same day. BUT, if you hold a credit card from a secondary lender Such as; Amazon, The Bay, Best Buy, Costco, etc. It’ll take 3 or more business days to process the payment. Meaning, if you pay on the 15th. The payment will be processed and confirmed by the 18th, or later. That Payment is now considered LATE!
So, if your statement says it’s due on the 15th of the month. It’s wise to pay the total balance no later than the 13th of the month. Ideally you should be paying it on the 10th. This will help clean up your credit score.
Don’t Exceed your Limits
Sometimes this happens innocently. Your credit card or line of credit starts creeping up on its limit, and then your interest charge mixed with penalty fees – pops you on the nose! Unfortunately, this DOES affect your credit negatively.
This is where you’ll need to flex your genius, and learn where your REAL credit limit is, and spend within it. It’s recommended that you don’t exceed 30% of your credit card limit, to show that you’re not dependent on borrowed money for daily expenses (something lenders don’t want to see). If this isn’t something you’re comfortable with doing on your own, then It’s always advisable to consult with a financial advisor when planning out your finances.
Pay Your Credit Cards Twice Monthly
One thing to keep in mind, is a good chunk of how your credit is evaluated, is how you’re using it. By keeping your balance at zero, you avoid interest charges on your core credit card usage, as well. The Credit issuer also reports your statement date balance to the bureaus, often before your monthly balance is due. So it’ll help you tremendously, to always keep a low monthly balance. Especially when you’re in the credit rebuild phase.
Don’t Keep Active Cards, And Not Use Them
Avoiding the use of your cards, or lines of credit – can harm you – especially when you’re looking to buy a house. Lenders want to see your financial capacity, when looking to qualify you for a $600k loan. A lot of them fear that you’ll go into sticker shock, when you see your first mortgage statement, and you’ve never seen a bill that high before. Also, by not using your credit, you won’t have anything generating credit for you, and may end up with no score at all. Equifax Canada mentions, that 30% of your credit score, is determined by your utilization of credit
If They Offer To Increase Your Limit, The Answer is Always YES!!!
There’s a hidden message from you to the lender, when you have higher limits. It’s “ I’m a financially responsible adult, and I absolutely can handle this mortgage”! This also helps lower your utilization of credit percentage, often resulting in a higher credit score.
Don’t Favour Any One Card, Spread The Workload Evenly
Especially when you’re rebuilding your credit, it’s good practice to spread the expenses evenly (or as close to even as possible) across all credit cards, and lines of credit. This helps you to:
- Stay well within your limits
- Keep all tradelines alive and well
- Shows your ability to manage your finances on a more complex level
- Keeps you from exceeding 30% of your total credit allowed
- Helps keep your credit score climbing north
You can also lose your line of credit if you leave it dormant for too long, and you become subject to another hard credit inquiry – should you decide you want to open up another one.
Pay First, Dispute Later
We all know someone, or have personally dealt with charges we are absolutely certain – didn’t belong on our bill. This often would result in taking a moral stand, and the refusal of paying said bill. The problem with this approach is that it’s YOUR credit on the line, and the refusal of paying this bill can (and usually will) affect your credit score negatively.
It’s strongly recommended that you pay the bill first. Then open an investigation on the charges shown. If it turns up you were right all along, the creditor will issue a refund – and your credit score will remain un-tarnished.
Even though the individual credit agencies show you a different score, than what the lenders can see. It really shouldn’t matter much to you as the borrower – so long as you implement these strategies to your financial habits.
Have questions? I’m here to help. Lets connect, and I’ll guide you on your journey to financial prosperity.