In: Real Estate News29 Sep 2011
Many people underestimate the importance of their credit score. This blog will highlight some of the problems that can arise if you don’t pay attention to your credit score. Credit makes the world go around. Without a credit score, or if you have a poor credit score, it could prevent you from buying a car, or buying a house.
The first thing you need to know about your credit score is to “Get one!”. If you have never had a credit card or if you have never received credit from a bank, you will not have a credit score. Guess what! If you have no credit score, even if you have $200,000 in the bank, you will not be able to get a mortgage. That’s right! A person that owes thousands of dollars in credit has a better odds of getting a mortgage that someone with no debt and lots of money in the bank. It makes no sense, but it’s true. Banks will not lend to people without a credit score.
You can get a credit score by applying for a credit card and making some transactions on the card. As sons as you begin paying your credit card bill, you will have a credit score. It may take a few months of consistent payments in order for a bank to lend you money for a mortgage, but at least you will have a credit score.
Once you have a credit score, you need to maintain a good credit score. You credit score will remain high as long as you always pay your bills on time. Every time that you are late on any bill, it will be registered and any bank will be able to find out that you were late paying your bills. The bank will look at how many times you were late paying your bills, and also look at how many days late you were.
If you refuse to pay a bill or dispute a bill, the company might send this to a collection agency. Once there, it will remain on your file for approximately 7 years. This means that you might have a hard time getting additional credit if you have a collection on your account. I had an instance where I received a $100 fine at a provincial park. I thought that this fine was unjust as I did not receive park instructions when I entered. I refused to pay this bill. When I applied for a line of credit, my bank did not want to give me credit. I explained the situation and they said that they would give me credit, but that my rate would be 1% higher. The bank might have just been trying to get me to pay a higher interest rate, but it’s a good example of how a non-payment can affect your credit.
Another way to maintain a good credit score is to always, at least, pay the minimum payment needed to meet your debts. So if you have an interest only line of credit, always pay at least the interest. If you have a credit card balance, always at least pay the minimum payment. Meeting the minimum payment obligations is enough to maintain a good credit score. The problems only mount when you don’t meet the minimum payments.
Another important thing to consider is to limit the amount of credit cards that you have. THis should be simple to do. There is no need to have a credit card for every store that you visit. Does anyone really need a Home Depot credit card, The Bay credit card, Canadian Tire credit card, Staples Credit card, Future Shop credit card, in addition to a PC Financial credit card, American expense card, RBC credit card… The best credit card is most likely the PC Financial mastercard. This card offers approximately 1% back in free groceries. It’s better to only have 1-2 cards and focus on using those. It ensures that you get more points and makes less bills to pay at the end of the month. If you obtain multiple credit cards and lines of credits in the months before applying for a mortgage, these additional credit facilities will actually lower your credit score. Anyone who gets lots of credit in a short period of time is a red flag to banks that are giving out mortgages.
As nice as it would be to have enough cash in the bank so that you never need to borrow money, chances are that you will, at one time in your life, need to borrow money. You want to make sure that when that day comes, you are able to get credit. Following the advice above will make sure that you are always able to borrow money.
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