Best Practices for Building Good Credit
Hopefully you have had a chance to read our latest series on the best way to qualify for a mortgage, as promised in my last post, here is a list of best practices to building good credit. The list is based on my experience as a financial planner and some of the unfortunate mistakes I saw too many people make.
Pinch'’s Tips to Great Credit
Pay all your credit products on time every month. Sounds simple, but too many Canadians underestimate the importance of paying on time. Put your due dates in your calendar or set up automatic payments.
Pay more than the minimum amount owing, and try to pay off in full every month. Carrying debt on credit cards over months and years not only costs you money on interest, it shows banks that you are not dedicated to repaying your debt.
Three cards, no more. Too many Canadians are walking around with four or more credit cards, each with limits greater than they will ever need. Banks are reluctant to lend to anyone with a lot of cards because if you go into debt on them then the bank is unlikely to be repaid. Next time The Bay, Walmart, or Canadian Tire offer you their card, just say no.
Since cable, internet, and phone companies report on your credit bureau, it’s important you pay them. Many Canadians will refuse to pay their cell phone or cable bills out of a quarrel with the provider, but in doing so they are damaging their own credit. Pay it off and cancel your service until you have resolved the dispute.
Consolidation is not a bad word. Many Canadians think that consolidating their debts is bad for their credit, or makes them look broke. Shake this assumption if you have it. A consolidation loan will bundle your credit card and loan debt into one new loan with a fixed repayment plan. This will save you a lot of money on interest, get you out of debt in a few years, and show the bank you want to repay your debts.
Do not apply for more than two credit products in a year. Your credit bureau tells banks how many inquiries you have done, and more than two in a year will make you seem like a credit seeker. Banks are suspicious of credit seekers because they wonder why you constantly need new credit.
Check your credit bureau every year, be proactive. Most people will review their credit card transactions before they pay it, or their grocery bill after checking out, but they do not take time once a year to check their credit bureau to make sure it is accurate. Take the time, call TransUnion or Equifax to get your copy.
Follow these seven simple tips and you will be on your way to building a great credit bureau. If you have any questions or comments please feel free to reach out on Twitter, Facebook, or Instagram. Stay tuned for our final 5 C’s of your financial picture, collateral, in the next post.