So maybe you let a few bills slide when things were tight. Or maybe you haven’t seen a zero balance on your credit card in longer than you can remember. Or maybe that temporary line of credit somehow became permanent. It’s amazing how many things we do that weaken our credit score.
Your credit score – the higher the better – is your passport to financial opportunities.
Known as a FICO score – with a possible range of 300 to 900 – your number tells lenders what kind of a risk you are likely to be as a borrower.
A low credit score can prevent you from getting the lowest mortgage rate, or even from getting a mortgage at all. Sometimes that’s how we first discover there’s a problem. The good news is that you can boost your score relatively quickly with the right credit behaviours.
Check out your report
First, you’ll want to know what you’re working with. Get a copy of your report and see what your lender sees. Credit reports can be ordered for free through the mail, or for a small fee you can download your report and your score. More information is available at www.equifax.ca or www.transunion.ca. Check your credit report carefully for any errors. If you spot a problem, contact the agency immediately to have the issue corrected.
Examine what’s lowering your score
Next, look carefully at the factors that are pulling your score down. The single biggest factor in your credit score is having a timely bill payment history; start today with a commitment to never let a bill get past due. The hardest hits on your credit score are accounts that have been sent to collections. Even for a small amount – and even if it is in
dispute – being “sent to collections” will create a serious, long-term stain on your credit reputation. Don’t let it happen.
The longer your credit history, the better
Many people make the mistake of rushing to cancel credit cards in an effort to improve their score. Bad idea. High balances are the problem – and your credit score is based on your balances relative to your available credit. Look at your credit card limits, and calculate what 30 per cent of your limit would be. Consider that your upper spending
limit and stay within it. Same goes for any lines of credit. Follow the 30 per cent rule and stay on top of payments.
Don’t cancel your oldest credit card – even if you no longer use it. That good history can help you. Get advice before you cancel any cards. And don’t regularly take out new credit. When you’re asked at the checkout counter: “Would you like to apply for our store card? You can save money on your purchase today,” don’t do it. These pitches are a potential credit pitfall. Regularly applying for credit will flag you as a potential credit risk.
Credit scores are part of the mortgage business and since mortgages are your broker’s only business, talk to them as soon as you can. Your mortgage broker can review your situation and let you know how your score will be viewed by lenders and what lenders are looking for exactly. If you need to improve your score, they can outline your best options for credit improvement. If you want to get a mortgage while you work on bettering your score, they can also advise how that may be possible.
