You’ve never missed the mortgage payment or let anything go to collections, so great credit is a given, right? Maybe Not!
There’s more to a good credit rating than simply paying the bills on time, and it has taken me years to learn figure it out. While that counts for 35% of your score, which is calculated within a range of 300 to 900, there are other determining factors:
30% credit utilization
15% length of credit history
10% the number of credit inquiries on your report
10% the types and variety of credit you have
A score of 800 or more is excellent, 720 to 799 very good, 650 to 719 good and 600 to 649 fair. If your credit rating is between 300 and 599, lenders will consider you a risk, call me today and I can help make a plan for credit repair.
Knowing your credit score and the elements that affect it are key to ensuring you aren't declined for a car loan or mortgage, as well as help you qualify for a the best interest rates.
Will that hurt my credit? Here is a look at some the ways, we hurt our credit.
1. You’re using too much of your total available credit
After paying accounts on time, the next most important element of your score is called credit utilization. This is the amount of your total available credit that you’re currently using, and it counts for 30% of your score. If you keep your credit cards and line of credit just shy of their limit—making the minimum payments or a little better—lenders won’t be inclined to give you more.
Credit fix: Find additional funds to pay down these balances. Look first to your fixed expenses, says Shannon Lee Simmons, a certified financial planner in Toronto and author of Living Debt Free. Visiting your budget, and finding a way to save even $100 a month makes a huge difference. @Grow Into Wealth recently offered a free webinar on finding $500 in November, Chrystal Ryan, co-owner of Grow Into Wealth gas tips on how to find $500 just by using what is in your pantry. Use online banking, it’s easy to set up an auto payment to ensure that extra $100 to $500 doesn’t just get eaten up by everyday spending at the grocery store or coffee shop.
2. You’re not demonstrating enough credit history
Naturally, lenders are more confident about applicants who have a traceable history of paying their bills. Lenders require a minimum of two years history, so get started young but be sure to make the right choices. This represents 15% of your score. You begin to build credit the first time you have a cell phone in your name or use a credit card, and the longer you have an account, the better. Don't close that old credit card just cause you don't use it anymore, this can damage your credit by shortening your history.
Credit fix: “Typically what I say to clients is if you have two credit cards and you only need one, then keep the one that you’ve had the longest,”. If a newer credit card has a rewards program or fee structure that better suits your needs, use that one for most transactions and—since some credit card companies suspend older cards if they go months without transactions—the old one for just your music streaming service or some other small subscription.
3. You’ve avoided credit cards altogether
I meet with clients, often that are so concerned about debt they don't have a credit card at all. This may sound responsible - no card, not high-interest sprees, right? This strategic is bound to backfire. Credit is a must have in today's society even for simple things like renting an apartment.
Credit fix: Get a credit card with a low maximum balance of $500 or $1,000 and using it to automate payment of a cell phone bill or Netflix subscription or gas every month.
4. You’ve made too many applications in a short time
Another 10% of your credit rating hinges on whether there’s been a lot of credit inquiries in a short period of time. This is one of many reasons to use a Mortgage Agent rather then shopping around at the different banks. I pull your credit once and can send it to as many lenders as needed to find you the product that is right for you. But if you’re applying haphazardly looking for the best rate or mortgage product, that signals to the bureau that you may be in a financial bind.
Credit fix: Be mindful; don’t apply for a new card or loan unless you really need it. Best to avoid promotional offers at retail stores for a special discount off your purchase if you apply for a store card on the spot.
5. You don’t have enough types of credit
The final 10% of your credit rating is based on the types of credit you hold. The bureau would rather you have a mortgage, line of credit or car loan than just a handful of credit cards.
Credit fix: If you only have cards, you may wish to add a line of credit and move some transactions there.
6. You don’t have a credit card with a major bank
Similarly, while credit cards are among the best tools for demonstrating and building good credit, they’re not all considered equal. Canada’s big six banking institutions are also known as “Schedule A” or “Schedule 1” banks. “More weight is given to a schedule A bank than a store credit card,”. The credit bureau knows that every Walmart teller offers you a credit card when your checking out.
Credit fix: Ensure you have a major bank credit card in your name. Banks are choosier about their credit customers, so those cards raise your score faster.