It’s time to go back to school… for your finances! The fall is the perfect time for a credit clean-up so that you are ready for the holiday spending season – and anything else the year can throw at you!
When it comes to cleaning up credit, there is no better time than now to recognize the importance of your credit score and check if you are on track with your habits. To get started with your credit clean-up, there are a few things you can do:
- Pull Your Credit Report: For most of us, our credit score is something we only think about when we need it. However, if you are unsure of where you stand, this is a great time to find out! The Fair Credit Reporting Act lets you get one free credit report every year through Equifax or TransUnion. Pulling your own credit report results in a “soft” inquiry on your report and will not affect your credit score. Click here to get your free credit report today. Be sure to check your bank’s online banking service, many offer free credit monitoring and review services such as Scotiabank and CIBC.
- If You Find Errors, Dispute Them: When doing your annual credit score review, it is a good idea to go through line-by-line and confirm no errors. If you find any errors, report and dispute them immediately as they could be affecting your score.
- Consolidate Your Loans: One of the best tips for managing your credit and working towards future financial success is to consolidate your debt. Consolidating debt reduces your monthly payments, can lower your effective interest rate, and if you own a home, you’ve probably got equity to use which can lower the rates even further. A typical credit card is now charging about 20% when you carry a balance. A loan or line of credit is around 8 or 9%. Your home equity could reduce that further to 5 or 6%.
When it comes to cleaning up credit, there is no better time than now to recognize the importance of your credit score and check if you are on track with your habits. To get started with your credit clean-up, there are a few things you can do: Once you have put the effort into cleaning up your credit, you will want to keep it that way! A few tips for maintaining your credit and maximizing your financial future include:
- Pay Your Bills: This seems pretty straightforward, but it is not that simple. You not only have to pay the bills, but you have to do so in full AND on time whenever possible. Paying bills on time is one of the key behaviours lenders and creditors look for when deciding to grant you a loan or mortgage. If you are unable to afford the full amount, a good tip is to at least pay the minimum required as shown on your monthly statement to prevent any flags on your account.
- Pay Your Debts: Whether you have credit card debt, a car loan, a line of credit or a mortgage, the goal should be to pay your debt off as quickly as possible. To make the most impact, start by paying the lowest debt items first and then work towards the larger amounts. By removing the low debt items, you also remove the interest payments on those loans which frees up money that can be put towards paying off larger items.
- Stay Within Your Limit: This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit is not advised. Your goal should be to use 30% or less of your available credit. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
NOTE: If you find you need more credit, it is better to increase the limit versus utilizing more than 70% of what is available each month.
Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower (or guarantor). If you are ready to start your home-buying journey, or are looking to refinance your existing mortgage, I’d love to help review your credit score and financial information to get you the most from your money.