Do you know what your credit score is? Do you pay attention to it? With everything you have going on in your life, it can be easy to forget about your credit score. However, this is a dangerous thing to forget and can cost you in the long run. Credit scores play a huge role in our financial lives and it’s important to make sure our everyday behaviours and actions align with maintaining a good score.
What is a credit score and why is it important?
Your credit score is a number between 300-900 that creditors assign to you based upon your financial behaviour. This number represents the likelihood of you repaying debts to a lender, and so the higher your score, the more reliable you are. Typically, any score above 700 is considered to be highly reliable.
Lenders will use your credit score to determine the interest rates you pay, the loans you are eligible for, and your insurance premiums. The better your score, the more favourable your repayment terms will be. Therefore, a good credit score will end up saving you money and allow you to maximize your assets.
Now that we’ve established the importance of your credit score, here are four great tips to help you improve and maintain your ideal scoring:
Tip #1: Make sure you’re paying your bills on time
The main thing your credit score aims to communicate to lenders is your reliability when it comes to paying back loans. You can prove this reliability on a daily basis by making sure you are always paying your bills on time. Missed payments can hold a strong negative influence over your score, even if you’re just a couple days late paying off your cell phone bill.
My biggest advice for making sure you don’t miss a payment? Automate everything. I always recommend setting up automatic payments or monthly reminders to help you keep track of all your bills and maintain your credit score. For simple payments such as credit cards and cell phones, it’s typically very easy to automate these payments directly from your bank accounts. For other payments that can’t easily be automated, scheduling monthly alarms in your calendar is another useful tool to ensure no payments fall through the cracks.
Tip #2: Stay on top of your debt
Creditors will look at the amount of debt you have when determining your credit score. The lower your debt, the better your score will be. Your student loans, credit card debt, and any outstanding invoices will just be some of the debt considered, so it is important to make sure you are staying on top of it all. Although removing all forms of debt from your finances may not always be feasible, aiming to pay the minimum balance each month is a great place to start.
Tip #3: Use credit cards effectively
Every time we tap our credit card, it can be easy to forget that we are spending real money. All of a sudden it’s the end of the month and we’ve almost reached the limit on our cards. This is a major no-no for creditors, and will negatively impact your credit score. Being strategic with your credit spending, and spreading your payments out across multiple cards to reduce your balance on each account, is the best way to ensure a higher credit score. Staying within 30 per cent of your total credit limit is the recommended benchmark and will ensure you are using your credit cards effectively.
Tip #4: Review credit reports
The last thing you want is to not get the score you deserve because of a silly mistake, so make sure to review your credit reports. Creditors are humans too, and errors can happen. By spending a few minutes each year to go over the report, you can ensure everything is in order and minimize the chances for permanent error. Furthermore, by reviewing your report you’ll be able to see where any areas of improvement may be. This can be a great way to remind yourself what you can do better to keep on improving your credit score.
Looking for some more details on how your credit score can affect your mortgage? Credit scores are one of my clients’ most frequently asked questions, so you’re certainly not alone in this department. Feel free to reach out for any further questions or concerns you may have! Call me anytime or contact me here to book a free consultation.