Stop damaging your credit
So you were paying your bills last month and forgot to pay that 45
dollar MasterCard credit card minimum payment. No sweat, it’s happened
before, you think “I’ll double it up next month”, right? Wrong. What you
might not realize is that you just beat up your credit to the tune of
100 points and that damage could stay on your
credit bureau up to 6
months. It might not seem like a big deal right now, but should you need
your credit to purchase a car or get a mortgage, you will realize the
interest rate you get might leave much to be desired. Not only that but
you might also have to explain to the potential lender what the reason
was for this bruise on your credit.
You have to take a moment to understand that your credit bureau is a
reflection of your reliability to pay debt. When you repay debt on time,
you are rewarded with a good credit score. When you miss payments on
credit cards and loans, your credit score goes down and the incident is
marked. This process is setup in such a way that lenders and banks can
look and see what kind of credit risk you are. If your credit bureau is
full of late payments and a low score, they consider you a risk and
charge higher interest rates. This translates to you in higher payments
and less money going towards the principal of the loans every month.
You also want to keep your balances rather low in ratio to the available
credit available. This shows lenders that you don’t run on the raged
edge of your borrowing power and are responsible enough to just borrow
what you need. This strategy also raises your
credit score. An
irresponsible person maxes out their available credit and runs the risk
of borrowing too much money and possibly getting themselves in trouble.
It’s all about balance really. If you are short on cash on a particular
month, I recommend you still pay a little more than the minimum payment.
This is just good practice and will keep your score healthy.
Another problem that may damage your credit report is getting too many
inquiries on your bureau. The more you shop around for things, like
cars, jewellery and maybe furniture, the more you look like a seeker of
credit and the lower your score can become. Be careful here as it
doesn’t take long for your score to take a plunge. I’ve personally seen
low score bureaus with hundreds of inquiries and trust me, just window
shopping is ok as long as you don’t apply for credit in every store you
walk into.
What credit score do you need for a mortgage? CMHC considers you an A
rated client deserving of the best mortgage interest rates if your score
is 680 or more. You should have a minimum of 3 lines of active credit
going and a minimum limit of 1000 dollars on each line. For example, you
might have a car loan, a credit card and an unsecured line of credit,
all active and all being paid on time every month for at least 6-12
months. If you treat your credit with respect, you should have no
problem getting your mortgage, credit bureau wise, at least.
It is also a good idea to have a look at your credit bureau once a year
to make sure everything is on the up and up and that there are no
mistakes or evidence of fraud or identity theft.
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