How long has it been since you checked your own credit?

What’s that I hear?  Crickets?  🙂

You’re not alone…  Most of us kinda sorta have a sense of how our credit looks – great, so-so, or needing-improvement.  But, like keeping your body fit, keeping your credit fit requires ongoing maintenance.

Why should you care?

A great credit score is your ticket to better financial opportunities

Your credit score tells lenders what kind of a risk you are likely to be as a borrower.  So the higher your score, the less risky you are for them to lend to you, so they give you the best possible interest rate. By the same token:[spacer height=”5px” id=”3″]

A low credit score can prevent you from getting the lowest mortgage rate…

…  or even from getting a mortgage at all.   Sometimes, it’s during the mortgage financing process that we first discover there’s a problem.

The good news is that you can boost your score – sometimes quite quickly – with the right credit behaviours.

First, you’ll want to know what you’re working with….

Which brings us back to my original question.  If you haven’t checked your own credit recently (within the last 6 months to one year), then do it now. You can get your credit report for free through the mail, or for a small fee you can download your report and your score.  The two main credit bureaux in Canada are Equifax and TransUnion.  Lenders might check with one bureau or the other, or both.

Check your credit report carefully for any errors.

If you spot a problem, contact the agency immediately to have the issue corrected.  You’d be amazed at how often we find mistakes, oversights, or long-ago resolved information on credit reports.

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.

Many people make the mistake of rushing to cancel credit cards or drop credit limits down in an effort to improve their score.  Bad idea.  High balances are the problem.

It is important to know that your credit score is based on your balances compared to your available credit, and the longer the track record, the more helpful it is in showing that you’re a responsible borrower.  So if you drop your limits down so that they’re only a little more than your balances, it suddenly looks like you’re maxxed out, and your credit score plummets.  And if you only keep a couple of new (less than two years old) cards instead of old ones, that also negatively impacts your credit score.  The longer your history, the better.

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.

Finally, don’t regularly take out new credit.  This applies to things like applying for a department store card to get a discount – see my post about why this is a problem – or any other regular credit application.  Regularly applying for credit will flag you as a potential credit risk.

If you’re thinking about getting a mortgage in the next two years, I strongly encourage you to check your credit and talk to a knowledgeable mortgage professional about what the implications are for your specific situation.

If you’re in the Greater Toronto Area and you’d like my feedback, please don’t hesitate to get in touch.  I’d be happy to let you know how your score will be viewed by Toronto mortgage lenders and what it means to your financing options.

If you need to improve your score, I can outline your best options for credit improvement.  And if you want to get a mortgage while you work on bettering your score, I can also advise how that may be possible.

To learn more, check out my other articles on credit.

Image credit: [c] Marco Guidi for vecteezy.com