Your credit score is one of the most misunderstood financial tools we have access to as Canadians. What is worse is the misinformation being passed around by pseudo experts. Many of us have gotten into credit trouble at one point or another along the road of life. Here is how to get out of it fast – Like a Ninja! Hya!
Where is Your Credit Today?
There are a surprising amount of Canadians today who do not have a clue what their credit score is and what they can do about changing it for the better. The first step in improving your score is to find out where it is right now. This can only be accomplished by pulling a copy of your report. Equifax and TransUnion are the two big credit reporting facilities out there. You will want to pull a full report (your score and full detailed history). This can be done by following the link here: Equifax Credit Report and Score and will cost you about $24 plus taxes. I do not recommend to my clients the monthly services provided on these sites as this is quite costly and unnecessary. Pulling your credit report twice a year is more than sufficient. After you have this in hand – take the time to go over the report with a fine tooth comb and check for errors. Approximately 30% of Canadians have mistakes on their credit bureaus and it could be hurting your score and costing you thousands in higher interest rates.
Credit Building = Ninja Training
The unfortunate part about your credit report is that the powers that be keep a lot of the information murky. A major problem is that understanding credit is not taught in our school system at an early age. You will be given a credit card when you enter a college or university but no course on how to use it responsibly. I do not believe this is done by accident. Taking 100% responsibility for learning about your credit and how to keep a good score is solely on your shoulders. Here are some basic principles on which to build your credit skills:
1) Payment History – Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements. Weight – 35% of your credit score is determined by this
2) Amounts Owed - Amount owed on accounts, proportion of balance to total credit limit. Weight – 30%
3) Length of Credit History - Time since accounts opened, time since account activity. Weight – 15%
4) New Credit - Number of recent credit inquiries, number of recently opened accounts. Weight – 10%
5) Types of Credit - Number of various types of accounts (credit cards, retail cards, mortgage). Weight 10%
Secrets From The Master
Outside of the basics of what affects your credit – we need to determine some of the more common mistakes people make as well as tips in order to minimize the time it will take to master your credit. Here are
a few classic mistakes and how to remedy or avoid them altogether:
1) Avoid the bankruptcy/consumer proposal route – a surprising amount of Canadians come altogether too quickly to the conclusion that once their debt becomes unmanageable that it is time to throw in the towel and call it quits. What is not made apparent is the long term implications that you will be legally bound to before you can even begin rebuilding your credit. There are simple solutions like private mortgage loans and the self directed RSP mortgage that can stave off financial disaster and buy you the time necessary to turn things around and rebuild your credit.
2) Fighting a Bell/Rogers bill? Don’t! – So many Canadians are frustrated with the telecoms out there. The unfortunate part is that when there is a dispute arising from your account – you are guilty until proven innocent as far as your credit is concerned. The worst reaction is to not pay the outstanding amount. What happens is that over the months (and years) that it takes to resolve the issue – your credit score is deteriorating. Then when you go to renew your mortgage – the letter your receive from your bank is at an outrageous interest rate and they can get away with it because you fought a $300 cell phone bill? The best advice I can give you is pay them what they say you owe them and then fight them for everything your worth – Ninja style!
3) Have a long standing credit card – Keep it! – With all of the flashy points incentive programs made available to new credit card accounts – it can be tempting to close the old basic Visa you started with 15 years ago. Don’t do it! This is your strongest leg on which your credit history stands and one that should be maintained.
4) Carrying a high balance on one card and $0 on another – The truth is that 30% of your credit score is directly related to the amount of your balance against your high credit limit. Example $10,000 amount owing on a $15,000 card equals 66% of the total balance available being used. To quickly rebuild your credit – keep balances below 50% of their high credit limit and transfer an amount to another card or request an increase to your maximum limit to lower the percentage used. This is a seldom used Ninja chop to the credit reporters that works like a charm to increase your score.
Just remember that you are not alone in your quest to become a master ninja of your finances. I am always available to go over your credit bureau with you in order to provide a complimentary review of your specific situation and pointed tips to increase that score like a flying ninja high kick. Take a moment and order your credit bureau today – learn the basics – and avoid the common mistakes and you will be a credit bureau ninja master in no time flat. Cheers