Have you ever had your loan application declined by a bank? Or lacked negotiating power when setting the interest rate on your loan? If you answered yes to either of these questions, it is quite possible that your credit score is not as impeccable as you think… Not only will a good credit profile enable you to finally own a more luxurious and higher performance car than your neighbour (!), but it will also make it easier for you to borrow money from financial institutions to bring your needs to fruition. Arriving late to an interview for a new job will obviously create a less than desirable first impression. Meeting with a potential lender and presenting a bad credit score is very similar. You will probably make a bad impression and, as a result, the lender will be more reluctant to give you credit. There is unfortunately no overnight solution to provide you with an excellent credit record. However, there are a few good habits that can help you to maintain – even improve – your credit score.
Pay on time
The best advice, which for some is also the most challenging, undoubtedly remains to pay your bills on time. While arachnophobia is at the top of the list of the most common fears in everyday life, late-paying-borrower-phobia is without a doubt the most common one in the loan industry. Paying your bills on time will not only spare you from paying very high interest levels, but it is also the best way to build an excellent credit history. Your payment history is the most important aspect of your credit score. Although utility bills (telephone, cable, electricity, etc.) are not included in your credit file, many cellphone companies will not hesitate to notify credit reporting agencies of any late payments. Of course, the best way to make certain that you are never late is to always pay your balance so that it almost invariably stands at zero. Some situations may prevent you from paying off your balance in full. In these circumstances, it is crucial to at least make the minimum payment. Remember: the trails left by your late payments will blemish your credit record for a period of six years, one year less than a bankruptcy.
Do not exceed your credit limit
Although the new Michael Kors handbag and the latest Callaway golf club are appealing items, if you have reached the credit limit on your credit cards, you should refrain from doing such purchases. Contrary to what you might believe, transactions that exceed your limit will not necessarily be declined. Though it may happen from time to time, they will usually be accepted, and you will even be charged over limit fees that can reach up to $29 in some certain financial institutions. Additionally, you should make a point to check your balance, since you will not be notified if you exceed your limit. Another valuable piece of advice is to stay away from cash advances. Interest is charged daily, and there is even withdrawal fees. High fees, interests and poor ratings will be on your credit file: this is the catastrophic reality you can expect if you exceed your limit. Need we say more to convince you never to exceed your credit limit?
Cut down on credit applications
Although the vast majority of companies are well intentioned, do not think that they offer you a $50 discount simply because they quite like you. These “gifts” are often conditional on applying for their credit card. Not only does this represent an additional risk for you to fall into the never-ending cycle of debt in case of non-payment, but the company will have to make a credit inquiry in order to check your credit history and solvency. Holding a few credit cards is not harmful in itself, but the way in which you use them is the risk. Our goal is not to dissuade you from applying for new credit cards, but to make you mindful of the number of credit checks to which you may be subjected. If too many lenders request your credit information, your file could be negatively affected. Please know, however, that requesting yourself a copy of your credit record from Equifax or TransUnion does not have a negative impact your credit score.
Build a good credit history
The best way to build a good credit history is to start when you are young. If your credit record is of long standing, creditors will be able to evaluate your payment habits more easily. Your active use of various types of credit over a long period will also help to show creditors that you are a good payee. Diversifying your credit, whether as credit cards, margins or mortgages, will prove more advantageous than using the same card for 30 years. Try out different credit tools without going overboard on the number of cards or margins, which could be harmful to your credit record.
Dissociate your personal credit from your company’s credit
Company owners: remember that your personal credit score is separate from your company’s. For example, when you acquire new equipment for your company, it should be financed through commercial loans or leasing. At all cost you must try not to resort to your personal credit lines. Strict management of your company’s expenses will enable you to build an excellent reputation that will serve you well when applying for financing. Maintaining adequate working capital will also constitute an argument in your favour when you are negotiating rates. Remember that the solution lies in the healthy management of your expenses and of your company.
You have certainly already heard these famous words by billionaire investor Warren Buffet: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
This quote applies to your personal life as well as to your credit score. It takes many years to build a good credit history, but once you have obtained it, your excellent score will be well worth the effort. And if you succeed in achieving it, stay on course! Any sudden change in behaviour will penalize you, and unfortunately creditors will not be so forgiving! Start young, pay your bills on time, be disciplined, and you will be likely to avoid difficulties in finding financing for your needs.