Four Pro Tips for Healthy Credit

Maintaining a high credit score is essential for those who don’t want to be denied credit or forced to pay a higher interest rate. Despite this, many Canadians don’t know what their credit score is, or even which factors are involved. 

Your “credit bureau” is a report that details your credit cards, credit lines, loans, bill payments, and other aspects of your financial situation and history. In order to ensure you have a strong credit score, follow these four credit boosting tips.

1. Follow the 2/2/2 Rule

It’s difficult to demonstrate your ability to handle credit if you don’t acquire credit to manage. As such, your credit score will increase as more credit becomes available to you. 

The 2/2/2 rule means that lenders will want to see that you have at least two credit items, for at least the past two years, with a limit of at least two thousand dollars each. Your credit items will include two credit cards, or a credit card and a line of credit. 

When your bank or financial institution offers you an increase to your available limit that you don’t need, it may seem  responsible to decline, but by doing so you’d actually be rejecting the opportunity to build credit. It may seem counterintuitive, but assuming credit capacity and managing it responsibly is a better way to build your credit score. 

2. Track and Pay Your Bills on Time

A slightly more obvious staple of credit building is to avoid staining your record with unpaid bills. This includes obvious things such as maintaining payments on your credit cards and lines of credit, but also more obscure items like  staying up to date with car payments, cell phone bills, and even parking tickets. Failing to do so can have a significant negative impact on your credit score. 

While those who are unable or unwilling to pay their bills will likely not be surprised that their credit scores have suffered, others may be  unaware that they have neglected financial responsibilities. Miniscule credit card balances on forgotten accounts can do real damage. Unpaid accounts, with bills sent to previous billing addresses, could be negatively impacting your credit score as we speak. For this reason, it’s wise to keep tabs on your credit score and address any issues as soon as possible. 

3. Start Thinking About Your Credit Now

If you haven’t yet started building credit, there’s no time like the present. Think of “credit holder” as a job, the longer you’ve been at it, the more credibility you’ll have. If nothing else, remember this handy rhyme: “The longer you’ve had credit for, the better off your credit score.” 

Bonus Tip: If you share a credit card with a parent or spouse, it’s possible that it’s not contributing to building your credit. If you’re a so-signer, as opposed to a co-applicant, you may not be reaping the rewards of your responsible behaviour.

The fastest ways to determine if your credit card is recording on your own bureau is to either check your mobile banking app, or request a free yearly credit report from one of Canada’s two credit bureaus, Transunion or Equifax

4. Keep Low Balances

While it’s great to have credit availability, it’s not helpful to use it all. On credit cards or lines of credit, which are also known as “revolving credit items”, you’ll get the best results if you limit your use to around 40% of available credit at any given time. 

Consider the following example: if you have $5,000 credit, but find yourself frequently utilizing $4,000 before paying off your balance, you’re utilizing 80%. That’s double the ideal. 

There are two paths to rectifying this situation. 

The first involves more frequent payments. Instead of accumulating $4,000 in debt before making payments, try paying it down in $2,000 installments. 

The second path is through increasing your credit ceiling. If your financial institution is willing to increase your credit to $10,000, then your $4,000 balance will be in line with the 40% rule of thumb. 

Understanding your credit score is the first step in ensuring that it stays high (or improves). During your initial mortgage consultation, one of our Pinsky Mortgage professionals will go over your credit score with you, helping you interpret and improve it. It’s part of our commitment to helping you obtain the mortgage that is right for you. 

Book a free consultation today.