6 ways not to ruin your credit
Should you avoid using credit at all costs? Quite the contrary, says Judith Lashley, financial aid advisor at Concordia’s Financial Aid and Awards office.
“We all need to establish a solid credit rating. This allows us to apply for a loan, for example, or seek a mortgage to purchase property in the future,” she says.
The Financial Aid and Awards Office will be hosting Financial Literacy Week from November 2 to November 6, 2015. The team is ready to help you learn how to manage your money for school and life. Don’t have time for an appointment? Drop by and get some quick tips on budgeting from our staff.
Here are some key things to know about credit.
Avoid credit overkill
Don’t apply for every new card invitation you get — major chain stores, in particular, tend to have exceedingly high interest rates. Also, every time you start the process, an inquiry is triggered on your credit report.
Credit agencies don't like it when too many people are looking into your background. It raises red flags and questions: why are you tapping into so much credit in such a short period of time? And usually the incentive offered for getting the new card just isn’t worth it. Less is definitely more.
Late payments hurt
Forgot to pay that cell-phone bill last month? Not only will you incur late fees and penalties, your bank will report your delinquency to the credit agencies, bringing down your overall score.
In fact, many people have poor credit scores simply because they do not pay their bills when they’re supposed to. Ask your bank to set up an automatic bill payment program: by making sure you pay on time, every time, you’ll improve your credit rating. This can also save you money by preventing late fees.
Don’t push the limit
The closer you are to your limit, the higher your debt utilization ratio will be. This is a very important factor when it comes to determining your credit score: if you are maxing out your cards every month, it reflects badly on your score — even if you are paying off the balance regularly and on time.
Stop postponing the pay-off
Credit agencies like to see that you're paying off your debt in a reasonable amount of time. If you have a credit card that's been carrying a huge balance for years, then you could have problems, especially if you are making only the minimum payments.
Paying the minimum every month is good for your credit rating, but in the long term, carrying balances shows you may have a problem paying off a loan.
No credit means no credibility
It may sound odd, but if you've never used any credit instruments then you won’t have a credit history. That can be a problem when you eventually try to buy a big-ticket item like a house or a car because companies want to see that you have good credit. If you've never paid a credit-card bill in your life, then how can they see that you can handle a loan?
Get one card and pay it off in full every month. That helps you build a credit rating.
Don’t go cold turkey
If you already have credit, closing your card after paying it off may feel great, but it can hurt your rating.
Reducing the amount of credit available to you, and your usage of it, can impact your average credit history — which, in turn, will lower your score. So keep your cards open. Just use them sparingly.
Concordia’s Financial Literacy Week is part of a national campaign sponsored by the Financial Consumer Agency of Canada (FCAC).