November 1st kicks off Financial Literacy month and Financial Planning week is just around the corner starting November 20th. I joined Andrew Carter from CJAD radio this morning to share some surprising things that affect your credit score.
- Why is your score important?
o Because you pretty much NEED credit today. I’m all for using cash at times – you should – but if you’re living in our society today, you have to build a good or great score and maintain it. For better or worse, it changes every month based on your good or bad credit habits
- What makes up your score?
o It’s only a snap shot of your credit history – your loans, lines of credit, credit cards … and just recently, your mortgage. Many people were shocked that their mortgage didn’t used to be reported on their credit report. So if you were paying that on time but a little late with your credit cards, you could have a less than stellar score.
- So what are the 5 surprising things affecting your score?
o The first is paying on time every time. This means at least your minimum payment. For younger folks, they’ll write me saying some months they double up – like this month on paying their minimum so they don’t have to worry about it say in December during the holidays. You have to pay at least your minimum payment on a credit card every month, no matter what.
o Second, if your credit card isn’t with your regular bank, you need to give at least three business days to make that minimum payment. For example, if you bank with RBC and have an RBC Visa, when your payment is due, you can just flip the payment amount over online the same day. But if you bank with RBC and have a CIBC Visa and bank online, you’ll have to give at least 3 business days for the payment to go through.
- What’s another no no…
o Third one is using too much of your available credit … so if you have a $5,000 credit limit on your card, you never want to be over 50% - and ideally, under 25%.
o The fourth surprising one is having too many credit cards or lines of credit open. Because your credit report doesn’t reflect your net worth or income, too much credit, even if you have zero balances on them, can reduce your score.
o Lastly, applying for too many things in a short time period. For example, your adult child moves out, applies for a credit card, a new cell phone and boom, by the third application for a laptop lease, they get declined. It’s a red flag that someone is in trouble if they’re applying for too much credit in a short period of time. So space out applications when possible.
Your credit score can cost or save you tens or hundreds of thousands of dollars over your life time from the rate you can negotiate on your mortgage to your finance payment on your next car loan or lease and so much more. See a pro like a Certified Financial Planner for help and find more info at www.FinancialPlanningForCanadians.ca. If you’re in financial trouble, reach out to a non-profit credit counselor.