5 ways you can build healthy Credit

Tuesday Dec 11th, 2018

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5 ways you can build healthy credit on a daily basis

1. Make consistent payments

You may not yet know exactly when you’ll want to apply for a mortgage, but keeping our credit in shape now will help you close the deal when it counts.

Each time you make a payment more than 30 days late, a delinquency may be marked on your credit report. These marks can seriously affect your credit scores. Never miss a payment on your credit card by setting it up on direct debit/pay-in-full mode automatically.

Regular payments can benefit your credit health, as your payment history is the most important factor contributing to your credit scores.

2. Use credit in moderation

Carrying a balance on your credit card month over month could be detrimental to your credit health. And how much you use of your credit limit can also impact your financial health.

Credit card utilization is a ratio calculated by dividing your total balances across all cards by your total credit limits. According to the Financial Consumer Agency of Canada (FCAC), you should try to keep your utilization to below 35 percent of your limit to improve your credit health.

Responsibly using a manageable amount of your total credit limit tells lenders and bureaus that you may have an easier time paying back debts in the future.

Plus, it’s good for your bottom line. The only thing better than a low-interest credit card is not paying interest in the first place.

3. Practice good report form

Your credit report isn’t always perfect.

Part of keeping in good financial shape is ensuring that your financial records are accurate. Heather Battison, vice president of TransUnion Canada, recommends regularly checking your report to make sure the information is accurate and up-to-date: “Inaccurate information can negatively impact your credit scores, which is why it’s important to report any inaccuracies to the credit bureaus as soon as possible.”

The FCAC provides detailed instructions on how to report and correct errors properly.

The good news is that “regular” doesn’t mean every day. TransUnion points out that an annual review is a good start for credit maintenance. You may also want to consider using a credit monitoring service year-round that can flag potentially fraudulent marks or other issues that could affect your lending options.

Credit Karma allows you to access your TransUnion credit report and score for free at any time, which can make it easier for you to stay on top of your credit health.  They send you an update of your credit score automatically on a monthly basis.  This “inquiry” does not affect your credit score, but keeps you informed.

4. Stay dedicated to your credit efforts

Lenders use your history to understand how well you can handle credit.  length of credit history can account for up to 15 percent of your scores. Building a consistent history of good credit is a day in, day out effort so avoid closing credit accounts just because.

According to the FCAC, the maximum amount of time that credit information — positive or negative — stays on your report is six or seven years. How long the information stays on your report may depend on the credit bureau, where you live and the type of information.

Because of this, you should aim to have a lengthy and consistent record of good credit use.

5. Avoid binge credit requests

Thinking of applying for more credit? You may want to do so with an understanding of hard inquiries versus soft inquiries.

When you view your credit score on Credit Karma or when creditors “pre-approve” you for a card or loan, this is considered a soft inquiry that doesn’t affect your scores.

A hard inquiry is when a lender, bank or credit issuer submits a credit check in order to decide whether or not to issue you credit.

Each hard inquiry could drop your scores. The impact may lessen after a short time depending on your credit behavior in other areas, but the inquiry will remain on your credit report for a couple of years.

Bottom Line

Just like with building lasting physical health, none of these credit-building exercises are quick late-night-TV fixes that will turn your credit health around overnight.

However, when it comes to your credit, no step toward improvement is too small. Just keep moving toward your money goals, and you may reap the benefits of a happy and healthy financial life.  

If you are planning to buy a house within the next 6-8 months, you can greatly improve your credit score by then.   Avoid making a new vehicle purchase until you have your new mortgage firmly in place!    Connect with me now, to lead you through a long-term step-by-step plan to make home ownership possible for you….  www.hoffmannshomes.com/contact

 

 


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