We all know that missing payments and carrying a significant balance on our credit cards are a big no-no. These kinds of actions can negatively impact our credit score and make future financial decisions more challenging.
However, did you know that many other factors can potentially damage your rating? Since our credit rating impacts almost all big purchases—from a car to a house—knowledge about factors that hamper your progress is essential. Mortgage broker services can also turn you away from financing and lending if your credit score is poor.
This article looks at some of the main things that are impacting your credit score (and what to do about it).
1. Not paying your bills on time
Let’s start with the basics. Even one late or missed payment has the potential to reduce your credit score drastically. It can dip 100 points lower if the bill is left unpaid for an extended period. Many people are aware of this impact, but where they trip up is they fail to consider that a bill includes your water bill, phone bill, and even services or employers you’ve hired.
How this essentially works is that missed payments are sent to third-party collection agencies. They then report them to a credit bureau like TransUnion or Equifax. It is essential to avoid reaching that stage because the longer the payment is put off, the more your credit score suffers.
How can I avoid this? Ensure that you set up automated bill payments. This way, you don’t need to worry about due dates and amounts for any recurring bills that you may have.
2. Overusing credit checks
Each individual is entitled to one free credit report a year from a credit bureau. However, if you surpass that limit and get it checked more than once, then you open yourself up to a drop in your rating. Many people sign up for multiple credit cards and financing options, thus leading to their credit being checked many times over. This makes it appear as if you are trying to accumulate a great deal of credit in one go. Financial institutions and mortgage broker services take this as a sign of riskiness.
How can I avoid this? Try to apply for only one line of credit a year. Whether that’s a credit card, mortgage, or home loan, try not to exceed the amount, and your credit score will not dip.
3. Extreme usage
The amount of credit that you utilize will also impact your credit score significantly. Lenders look at this through percentages. Someone with a high usage percentage is at risk of a dip in their score.
For example, if you have two lines of credit at a $10,000 limit for each, then you have a total usable credit limit of $20,000. If you find yourself spending $15,000 during a particular month, then your usage percentage shoots up to 75%. This is a sure-shot way to get your credit rating to drop.
How can I avoid this? Try to get your monthly percentage down to 30% at the minimum. The less you utilize your lines of credit and keep your rates low, the better it is.
4. You have a lack of credit history
Mortgage service lenders are more likely to provide financing to those who have an excellent financial history. They will look at your debt resolution strategies and assess your risk level. This then determines how much they will lend to you. Thus, it is essential to have a traceable history of purchases and paying bills. This represents a total of 15% of your score. The longer you have an account and statements to your name, the better. A lot of people take out new reports if they have a poor financial history. Even closing old credit cards can damage your credit! That is because your overall credit history gets cut short, which in turn affects your score.
How can I avoid this? If you’re looking for financing, then go with the credit card that you’ve kept the longest. Look for one with the most transactions on it, even if it is something as small as a recurring subscription purchase.
5. You have existing liens on your assets
Liens on any of your assets, such as your car or home, have the potential to impact your credit score poorly. Liens can be placed on an asset if you failed to make a payment to a service provider or lost legal proceedings. Those who’ve been sued may also find liens placed on their investments. A lien is one of the worst ways to impact your credit score. It can bring your score down significantly, thus affecting it as much as bankruptcy!
How can I avoid this? The best way to combat this is to make an immediate rectification. Be sure to pay off outstanding bills, service providers, and more. The longer you put off making the payments, the more your credit score suffers.
There you have it: 5 things that are majorly impacting your credit score! Many Canadians do not realize that small actions are reducing their rating. The good news is that there are ways to divert these mistakes. If you’re worried about your credit score and are struggling with getting approved for financing, then be sure to check out Canadalend.com. Our team offers a variety of lending options to increase cash flow that you can free up for renovation, investments, and more.
For more information on mortgage broker services, call Canadalend at 1-866-422-6536 or contact us here.