TIPS ON BUILDING CREDIT
Your credit report reflects details about your personal and financial situation, such as:
- Basic personal information, including your Social Insurance Number
- All credit accounts you may have, such as car loans, credit cards or a mortgage
- Whether an outstanding debt was ever transferred to a collection agency
- Any public records such as a bankruptcy or monatary judgment in a lawsuit
- Any credit report inquiries made by you, a lender or any other authorized organization
Here are some tips to ensure a top ranking credit score:
ALWAYS PAY YOUR ACCOUNTS ON TIME
If you cannot make payments, make sure you are never 60 days past due. Some creditors will not report you if you are under 30 days past due but they will definitely report you for 60 days over-due.
ACTIVITY COUNTS ON EACH AND EVERY ACCOUNT
Many people have credit cards that they never use. This actually hurts your credit score since your file isn’t active on these accounts. Pay accounts off on time to keep a healthy active credit history. Draw down on your line of credit every so often, even if you don’t need the money, and pay off the principal the next day to keep a good history on the line of credit.
IF YOU HAVE TO, CANCEL THE NEWEST CREDIT ACCOUNT FIRST
Your credit history and debt to credit ratios count. If you cancel a long standing account (assuming it is in a relatively good shape) you are erasing credit history and increasing your total debt to credit ratio since the available amount of credit to you just decreased pushing your ratio up. This is why I won’t cancel my first credit card.
DIVIDE LARGE PURCHASES AMONG SEVERAL ACCOUNTS
If you buy a dishwasher and max out one credit card to do it, your debt to credit ratio increased to 100% on that account which decreases your credit score. Split the purchase of big ticket items between several credit cards and try to keep the debt to credit ratio on each card under 50% (i.e. only use 50% of the credit available under each card).
DO NOT APPLY FOR A LOT OF CREDIT AT ONCE
This is a particularly important tip for students who have just graduated or recent immigrants without a domestic credit history. If you do need credit, try to consolidate it with one institution which only has to run your credit score once. Apply for a credit card and a line of credit at one bank or at the same institution that is administrating your student loan; it will only require one credit check and, if you subsequently apply for more credit at that same institution, at least they will know that all the new accounts are with them.
If you are thinking of applying for a mortgage, start creating a good credit history on each account. You should ideally keep 2 – 3 accounts in good standing (and with a low debt to credit ratio) for at least 6 to 12 months minimal. It will increase your score and save you money.
Avoid Unnecessary Inquiries Each time a prospective creditor looks at your credit report, an inquiry notation is added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment purposes are not reported to potential creditors. It’s best to avoid over-applying or credit and running up excessive inquiries, for the simple reason that lenders may think you’re trying to get credit due to financial difficulty, or taking on more debt than you can repay. Lenders do of course realize that some inquiries are a result of shopping around for the best rates on a loan, and so they will often overlook a block of inquiries within a very recent period. Generally a 14-day allowance is given.