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A lot of the issues that surround credit scores and credit reports can be rather confusing to say the least. But the one thing that most people know is that the higher their credit score is the better their chances of getting a mortgage with a decent interest rate and getting the Waterloo Region home of their dreams. Many people – especially young people – wonder just what are the best ways to help ensure that they have the highest credit score possible and although that in itself is a complex issue there are some tips you should know about that are probably more important than others. Here are our top 5 credit score tips:
1) Pay Within Thirty Days
A large chunk of your credit score is based upon your payment history and more specifically debts that are over thirty days past due have the biggest impact. This essentially means that if you are going to be a few days late with a credit account payment so be it, but try never to let it go past that thirty-day mark to avoid it having a bigger impact on your credit score.
2) You Do Need A Credit Card
A lot of us may have had older relatives who told us that the best way to live your life, financially at least, is to pay for the everyday things you buy with cash as you can afford them and avoid the dangers of credit card use altogether.
Logically this advice makes a lot of sense. However, realistically, what are the chances that you are ever going to have enough money in the bank to buy a house cash unless you hit the lottery?
If you choose to open no credit accounts but carry no debts you are still a big risk in the eyes of a lender because you really do not have a credit score at all. Therefore, you really do need to open at least one credit account and use it responsibly and on a regular basis in order to be able to qualify for bigger ticket lines of credit in the future.
3) Canceling Your Credit Cards May Not Help Your Credit Score
Although many people do not realize it canceling credit cards can actually damage your credit score rather than help it. This is especially true if you have had the card for some time and the account has become a part of your long-established credit history.
Even if you never intend to use the credit card again – you found one with a better interest rate, better perks etc and you intend to use that in the future instead – it is much better to shred and forget the card than cancel it altogether, as 15% of your total credit score is based on the length of your credit history.
Keeping the account open is also better for your debt to credit ratio in most cases and that is something that accounts for a whopping 30% of your credit score!
4) Do Not Apply For Too Many Credit Lines At Once
This is a mistake a lot of people make. Unable to decide between credit offerings, or unsure of which they might be approved for, they apply for three or four at once. Or they apply for a store card someplace, a fuel card and a couple of credit cards to make sure that “all their bases are covered.”
The thing is though that every time a lender makes a “hard pull’ on your credit it leaves a slight negative mark for up to a year. Applying for too much credit at one time is also a signal to the credit reporting agencies that you may not be the most financially responsible individual in the world.
This advice is especially important when you begin to start thinking seriously about buying a Waterloo Region home and applying for mortgage pre approval. The general advice is to avoid applying for new credit if homebuying is in your near future for at least 3-6 months.
5) Know What’s On Your Credit Reports
In Canada, two major credit reporting agencies compile information on how well you manage credit and make your payments. They are Equifax Canada and TransUnion Canada. Both are obligated under law to provide you with a free copy of your credit report at least once a year, and for a small fee you can access them more often. The proper procedure for requesting reports is outlined here.
By requesting a copy of your credit reports you will not only get a clear picture of how potential lenders ‘see’ you but you can also check for any mistakes (they do happen) and request they be corrected before you make that big mortgage application so you can start shopping for your Waterloo Region home.