There is actually many things that Canadians are doing that are beating their credit scores down without even knowing it.
Surprisingly, there are a lot of things you might be doing that are negatively ruining your credit score. Therefore, it is extremely important to ascertain what you are doing to cause your low score as a poor score can impact your ability to obtain loans for such things as cars or home repairs. Although fixing things you are doing wrong will not have an immediate impact on your ability to borrow, your score will improve over the course of a few months.
Failure to pay your debt on time
It should come as no surprise that failing to repay your debt plays a big role in lowering your credit score. However, it is important to understand that failing to pay off credit cards is not the only thing that can affect your score. For instance, it is just as important to pay your utility bills on time. Additionally, failing to stay current on any loans you have incurred can also be ruining your credit score.
Your repayment history can also affect your credit score. Your repayment history is simply how long it takes to pay off any loans, including any you might have acquired from a company that provides cash advances. Simply put, a longer amount of time required to pay off your loans will negatively impact your credit score.
Staying on top of all your bills demonstrates that you are responsible when it comes to your debt. Conversely, allowing your debt to pile up will eventually result in a drop in your credit score. If you are carrying a lot of debt, you might want to consult with a private lender regarding the best way to consolidate that debt in order to get your payments back on track.
Numerous credit checks
The fact is, more times your credit is checked, the more it will impact your score. However, it is important to understand that not all checks are the same. In fact, there are two different types of checks that can be conducted in Canada.
The first type is referred to as a soft check. A soft check is when someone checks your history for a purpose other than lending, and it will not impact your credit score.
The second type of check can hurt your score and is referred to as a hard check. A hard check occurs when you apply for loans from such places as banks. It can also happen when you approach a private lender for a line of credit. Numerous hard checks in a short period of time will likely cause your score to drop.
Therefore, it is extremely important that you do not incur unnecessary checks. For instance, one of the biggest mistakes you can make is engaging in something called credit churning. This occurs when you apply for a card for the sole purpose of obtaining a bonus for signing up for the card then cancelling the card as soon as you receive the bonus. Of course, everyone can use a bonus, but credit churning will result in a drop in your score.
No repayment history
Another mistake you might be making is failing to build a repayment history. For instance, you might think paying for everything in cash is a good way to ensure you never go into debt. Although this is true, not building a history of repaying debt can lead to difficulty when attempting to purchase a car.
This potential difficulty is due to the fact that both private lenders and banks look at your repayment history when deciding to give you loans. In fact, from a private lender’s perspective, if you do not have a repayment history, there is no proof you will repay the loan on time.
Maintaining high limits on credit cards
Maintaining a high balance on your cards, even if you never miss a payment, can actually cause your score to drop. To ensure this does not happen, you should be aware of something called credit utilization. Credit utilization compares the credit you use with the amount that has been issued. If your limit is $80,000 and you maintain a balance of $16,000, your utilization is 20%. You should keep your utilization under 30% across all of your cards.
Allowing incorrect or outdated information
Because your credit report is a concrete representation of how well you manage repaying loans, it is important to ensure that all of the information is correct. For instance, allowing errors to remain on your report can result in lenders rejecting your applications. A bad score could also impact your ability to rent a place to live.
As such, it is very important to keep an eye on the information that is contained in your report. Be sure that you check your report at least once per year. If you find anything that is incorrect, you should immediately contact the creditor and resolve the issue. Additionally, if you are not satisfied with the resolution, you can submit a statement that explains your position regarding the error. This brief statement will be included in your report and can help private lenders make a decision about approving your loan application. Finally, addressing incorrect information on your report can actually help to improve your credit score over time.
Although it might seem strange, building only one type of repayment history can actually be ruining your credit score. This is because lenders want to see that you can handle diverse forms of credit. For instance, having experience paying loans, credit cards, and a car will show you can handle multiple types of credit, making you a more attractive applicant. Conversely, if you only have a history of being able to handle utility bills, you might end up hurting your chance at being approved for loans.
Paying off your cards after months of making payments can result in exhilaration. In fact, for many people, it is such an incredible accomplishment that it results in cutting up the cards and closing the accounts. However, closing your accounts is yet another mistake that you should avoid as closing your accounts can actually work towards ruining your credit score. The reason this hurts your score is that it can eventually erase your borrowing history. Additionally, it keeps you from building a positive credit history, something that is important if you want loans in the future.