SAVE THOUSANDS WITH YOUR CREDIT SCORE
Did you know that a good credit rating will help get you better interest rates and save you money? Even a ½% savings on your mortgage or loans will save you tens of thousand of dollars over time.
At the Blackmore Levy Group we know the importance of your credit score, do you?
Too many people can’t have what they want for the right price because of all the errors on their credit report. Did anyone tell you that you have to do your own homework regarding your credit report?
Your credit rating can save you money. If you don’t know your credit score here are a few tips on how to obtain the information and ultimately save yourself tens of thousands of dollars.
Your credit score is one of the most important elements that affects your finances. Lenders use your credit score to determine your credit worthiness and what interest rates you pay on your debt. The lower your score, the higher the risk you are, and the higher the interest rate you will pay.
Yet, consumer reporting agencies (Credit Bureaus) provide very little information on how your credit score is calculated. They believe the information is proprietary and therefore their “secret”. Your credit score can range from 300 (very poor) to 900 (excellent).In Canada, there are 2 credit reporting agencies: Equifax and TransUnion. The lenders provide credit history to the credit bureaus and it is usually updated every 30 days.
Factors that affect your credit score and how you can improve it:
1. Payment History
Pay all of your bills on time. Paying late or missing a payment on your credit card and having your account sent to a collection agency has a negative impact on your credit score. At least pay the minimum amount every month.
2. Balance-to-Limit Ratio
This shows the percentage of how much you are using of your available credit. For example, if you have a $10,000 credit card limit, and your balance is $7,500, your balance-to-limit ratio is 75%. Keeping your account balances below 40% of your available credit will improve your score.
Avoid maxing out your credit cards or going over your credit limit, as your credit score will be negatively impacted.
3. Length/history of Accounts
The longer your credit history, the more points you earn. A good credit history is built over time. Avoid closing accounts as it will affect your credit score. You are better off leaving the account open with a zero balance as you may need them in the future.
4. Recent Inquiries
Applying for new credit and having too many inquiries in a short period of time can be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt lenders to ask why. Apply for credit only when you have a genuine need for a new account.
There are two types of Credit Bureau file inquires. “Hard inquiries” such as an application for new credit, which will lower your score. “Soft inquiries” such as requesting your own credit report and businesses checking your file for updates to your existing credit accounts for approving credit limit increases, will not appear on your file or lower your credit score.
While a “flurry of inquiries” may indicate financial difficulties, there could be other reasons, such as moving to a new city, where you will need to apply for a new mortgage, a new electricity and gas account, cable, phone and other utilities. These inquiries into your account will deduct points from your score, so you will take a hit (points wise) on your credit rating for moving. Lenders will understand the reason for this decrease when you explain why.
5. Variety of Credit Accounts
A healthy mix of credit accounts and loans will be better for your credit score, rather than having only one type of credit such as credit cards. Mortgages and student loans are considered investments and having those on your account show a more responsible behaviour than credit cards.
6. Too many accounts
Having numerous credit accounts, especially if many of them carry balances, is another warning sign of financial distress. If the Credit Bureaus think you have too many similar types of accounts, they will deduct points and this will bring down your score.
7. Consolidating your debt
Paying off your high interest debts with a new low interest loan will not only help you save money every month but it’ll help lower your credit score over a shorter period of time too.
Factors that could negatively impact your credit rating:
Credit Bureau reporting errors can cost you financially. Incorrect delinquencies on your credit accounts, incorrect name or Social Insurance Number, wrong mailing address and unauthorized inquiries on your account can also affect your score.
The Credit Bureaus are paid by the creditors who pull credit bureau files and in turn who report to them. Credit reporting is done electronically and Credit Bureaus accept the information they are sent without any investigation into the accuracy of the information. Therefore, is it important that you obtain a copy of your credit bureau report at least once a year. Only you will know when there is an error on your file, and it is up to you to have the credit bureaus fix it.
2. Moving or Changing Jobs Frequently
The longer you live at a residence, the better it is for your credit. Similarly, if you have a long stable employment history, this is favorable for your credit score. Lenders look at your stability which in turn has a higher likelihood of repayment of your loans.
3. Having No Credit History
Your credit score is largely made up of past financial behaviour, like paying your bills on time and how much of your available credit you use. If you have no credit history, creditors have no idea if and when you will pay them back, which will impact your ability to get a loan when you do need it. If you need to rebuild your credit, open a secured credit card account. You pay a deposit, which sets the limit of your card. Then you use it like a regular credit card. The secured credit card provider reports your payment habits to the credit bureau(s), so you will be able to gain points with an account in good standing.
4. Co-signing for a loan
If you co-sign for a loan, you are legally responsible for the debt, even though it may not be in your name. Any loans you co-sign appear on your credit bureau and if the other person defaults on the payments, this negatively affects your score.
The good news is that your score is not stagnant and you can improve it over time. Make positive changes to the way you handle your credit by paying your bills on time and reducing the amount that you owe. Obtain a copy of your credit report from Equifax and TransUnion at least once a year. This way you can ensure that there are no errors and if there are, you can fix them right away.
Remember, we at the Blackmore Levy Group are here to help you. We will custom design and build or re-build your Financial House the right way and save you hundreds or thousands of dollars. Please contact us and we will create your own personalized financial blueprint.
Blackmore Levy Group
3310 South Service Rd., Suite 300, Burlington, ON L7N 3M6