Common Myths About Credit Scores
Because the top secret formula has never been released there are common myths that are floating around about the ones credit score, here are the top 5.
1. Too Many Credit Cards Will Hurt My Credit Score – Actually, cancelling healthy active cards or accounts hurt more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time your should observe the rule of maintaining a balance at no more than 75% of the limit. Applying for new credit every week will lower your score more.
2. Using Credit to Build a Credit Score – Remember to keep your balances lower and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.
3. My Utilities and Internet are Paid On-time Every Month These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.
4. Checking My Score Will Decrease It – There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting loan or credit card applications. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty. Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Most creditors, however, disregard any that have been on the report for over six months. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visable to
|potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked. For example, if a landlord uses Experian to check the creditworthiness of an applicant, the credit check will only appear on Experian’s report, not TransUnion or Equifax. To limit the number of soft inquires made on your credit report, contact the credit reporting agencies and request that they remove your name from marketing distribution lists.
5. There is Nothing I Can Do Once a Payment is Late – Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it.
GET CREDIT FIT. Having and maintaining good credit is a process. Like getting in and staying in shape, it doesn’t happen overnight. It’s something you need to continuously work at, nurture and track. In the banking and finance sector you, as consumers/borrowers, have absolutely ZERO control over how the lenders and the Bank of Canada will adjust the interest rates or if an employer will absolutely 100% be granting you a raise on a yearly basis or what the real estate market trends are currently doing. You do however have absolute 100% control over you credit history and score. Treat it like a loved-one; always check on it, keep it forever (credit cards especially) and don’t cancel/open others. Increase the limit through the years and feed it regularly (use the credit and re-pay it). Without (strong) credit you will not be able to purchase items that require a soft or hard credit check and poor credit will only give you access to higher rates. If you have no credit it will be impossible to get a mobile phone, new car or even rent a home, let alone buy a new home. By building and maintaining your credit you will ensure that you have given yourself the best chance at obtaining credit and the lowest possible mortgage interest rate.
For a comprehensive (no charge) review of your credit report please contact me.