How To Repair, Increase and Maintain Your Credit (The Do’s and Don’ts)
Credit scores are like report cards for grown-ups. The score you get ranges from 300 to 900. Your score indicates your creditworthiness to potential lenders, banks, landlords, insurance companies, and even to some employers, for instance. The higher your score the better. A score of 700 or better is needed to get the best rates.
| 1. Get a Copy of Your Credit Report – Make an inquiry, at minimum, once a year, twice is much better. If you are planning on purchasing anything that requires a credit check, keep track of your credit. This is something that is 100% in your control. As a consumer you have ability to make a soft/consumer inquiry to Equifax as many times as you want without it affecting your score. Here is a link getting your report and knowing your score. If something doesn’t look right, contact the creditor immediately. Don’t wait to report an incorrect or fraudulent transaction. Is there an outstanding collection? Deal with it immediately, and by that I mean pay it. Then argue to get your money back. Do not leave this on your credit report for 2, 3, 4, 5…months dragging your credit score down. No matter what, the collection will not be removed until it’s paid unless taken to litigation. Once dealt with it will still take months to recover the points lost and 6 years to fall off your credit report. |
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2. NEVER Miss a Minimum Payment – Because this attributes to 35% of your overall score, delinquencies have the biggest negative effect on your credit score. If you have overdue bills, make the necessary arrangements with your creditors. They would much rather work with you than file collections against you. If you can’t pay it all back, it’s better to pay some. The attached image is a statistical analysis of what happens when lenders issue credit to borrowers with lower scores. 78% of all credit that goes unpaid over 90 days late is to borrowers who have a score of 499 or less. If your score is 800 + you are going to be 90 days late on a payment less than 1% of the time. Mortgage financing and credit is a numbers game! |
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3. Don’t Close Unused Credit Card Accounts – Got a credit card that you have had ten years and hardly use? Keep it. It takes 12 years history with the same specific card in good standing to crack 800 and enter that top 2% tier of quality credit. Canceling a card can actually assist with lowering your score. Keep the old cards and only use them occasionally so the issuer doesn’t stop reporting your information to the credit bureaus. Having a long credit history helps increase your score. Don’t jump around to credit providers. Most ‘large’ providers like RBC Visa, have several different products. There is likely one that will fit your needs. |
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4. Never Max Out Your Credit Cards – A good rule of thumb is to keep your balance below 75% of your maximum credit limit; even if you pay them off in full each month. For example if you have a credit card with a $5,000 limit, don’t carry a balance that exceeds $3,750. It’s better to have two cards with balances that are each below 50% of your limit, than to have one card that you consistently max out. NEVER exceed the limit, by even a $1. |
| 5. Don’t Look For More Credit – Don’t shop around for credit or open several credit accounts in a short period of time. It raises alarms at credit bureaus and financial institutions, especially when you don’t have a long¿established credit history. Work with you existing creditors, seeing as there is more relevant history they are more likely to work with you, especially if you are looking to resolve some credit hardship(s). Always ensure you give your permission before allowing a credit check. |
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6. Rule of 2 – Ideally you want to have 2 sources of credit solely in your own name for a minimum of 2 years with at least a $2,000 credit limit. This would be either 2 credit cards or one credit card and a line of credit. Ensure this is in addition to any joint accounts. Joint credit is only reported to the primary credit holders credit bureau. |
| Credit Mistakes | How it affects a GOOD score | How it affests a GREAT score |
| Maxed-out, maybe over limit | -10 to -30 | -25 to -45 |
| 30 day late payment | -60 to -80 | -90 to -110 |
| Debt settlement | -45 to -65 | -105 to -125 |
| Foreclosure | -85 to -105 | -140 to -160 |
| Bankruptcy | -130 to -150 | -220 to 240 |