Unless you are under the age of 18, then your credit rating is an integral part of who you are and a major factor in some of the biggest decisions you will make in your life. Now, in a perfect world everyone would make every payment, never rack up and debt and all have scores 800+. But this is the real world and the reality is things happen that can hurt your score. In fact, a huge share of the mortgage lending market is based around clients with less than perfect credit. Fortunately for those with a below average score, or even those with a strong score who want to improve or make sure they maintain it, there are a few key items credit bureaus like Equifax and Transunion focus on and we’re going to outline the top 5 to help you improve your credit score – or keep it strong!
Have more than one credit account open. This does not mean get credit happy and sign up for every card under the sun. Credit bureaus look at active credit available and if you are managing 2 or 3 different credit cards/Lines of Credit/Vehicle Loans properly this will help strengthen your credit rating.
Use your accounts on a regular basis. Companies like Master Card and Visa report to the Credit bureaus once per month typically. One of the items on your report is Date Last Active, or when you last used your card. If you opened the account and never used it, then it does not get reported and does not really help you out. Even if you use once a month for a tank of gas and pay it off, it will still be reported and therefore strengthen your rating.
Keep your balances below 50% of the limit at MAX. Obviously it is ideal to pay off your balances in full every month, but sometimes this just isn’t the case. Maybe an unexpected expense came up and you needed to use your credit, maybe you had some credit issues in the past and you’re working on repairing your rating. Whatever the case is, it is extremely beneficial to your score to have your balances below 50% of the available limit. Part of the algorithm the bureaus use to determine your score is amount of credit used versus amount of credit available. Keeping this below 50% will most definitely improve your beacon.
Avoid too many credit inquiries. Pulling multiple credit reports can hurt your score, but contrary to popular belief not all inquiries shave points off. If you for example are shopping for a vehicle, find one you like, apply for financing and that’s the end of it; this does not hurt you. If you go around to 5 or 6 different dealerships and do a credit inquiry at each one for the same purpose in a short time span, this will hurt your score. Avoid doing credit checks before you have a good idea of what it is that you need. Additionally, there are two types of credit inquiries: A soft hit and a hard hit. A soft hit is when you go on to Equifax and do an inquiry on yourself. This does not show up as an inquiry on your bureau. When a bank or other company performs a check on you for a reason, this will show up. This is also an advantage of using a mortgage broker over a bank. Brokers will run ONE credit check and use that for any lenders they may submit your deal to.
DO NOT MISS PAYMENTS. Fairly self-explanatory statement and probably the most obvious thing you have read today. Missing payments is a no-no. Although it is not the end of the world, a missed payment not only hurts your score but generally, they will continue to show on your report for the next 7 years. Put a reminder in your phone, tape it to your forehead, whatever it takes. Make your payments on time.
Have any other tips that we missed? Don’t agree with any of the above? Let us know in the comments. To learn more about how your score can affect your options with your mortgage if you are planning to purchase or re-finance, call us at 905-265-0246 or email email@example.com
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