Tips To Improve Your Credit Score
Diane Gogar • Jul 22, 2020
Your credit score is critical to you obtaining credit. Applying for a car loan, a consolidation loan, a line of credit, a mortgage, or even a cell phone can be a challenge if your credit score is low. Your application may de declined or you may get a higher rate on credit if your score is low. The lower the score, the higher the risk and the higher the interest rate. Lenders are not comfortable lending to a client with late payments or collections on their credit bureau.
Your credit score is also very important to a landlord. You may be turned away from renting an apartment if there are late payments on your credit bureau. This is a high risk application because it tells the landlord that the rent payments will be late, if credit card payments or loan payments are late.
Why is having good credit important?
A bureau that shows payments on time tells a lender that this client is responsible towards credit and will be responsible in the credit applied for. Lender feels inclined to lend here.
A bureau that shows a lot of credit cards with high balances tell a lender that this client may be using credit cards to supplement their income, or is a big spender. This scenario will result in a lower credit score and can result in less money being lent by the borrower and also a higher interest rate.
A bureau with constant late payments and collection items say that this client is irresponsible towards his obligations. Lender may require security for a loan in this instance because the likelihood of their loan not being paid is high. The lender may decline application even if there is security, because they do not want to take on the risk of non-payment.
So what should you do to keep your credit score high, or to improve your credit score?
- Make all payments on time, even if it is just the minimum. A one day missed payment is registered as a 30 day late payment on your bureau. You can make this easy by paying online, or setting up a pre-authorised minimum payment by the credit card company.
- Keep credit cards balances below half of the limit. If a card limit is $5000.00, your goal should be to keep the balance around $2000.00. The ideal would be to stop using credit card until you have brought the balance down to below half.
- Pay telephone bills on time. Yes, phone bills are registered on your credit bureau. If there is a dispute with a phone company, pay the bill before it goes into collection and then continue the dispute. The phone company sends uncollected bills to a collection company. It is registered on your bureau as a collection item and causes a huge drop in your credit score.
- Do not close off credit cards until you confirm the balance is zero. Sometimes there is an interest payment, depending on the date you close off card and you may think the card is paid off, but there is a small balance, which if goes unpaid will register as a late payment.
- Do not close card until card is paid. Sometimes, a client may have a balance on a card and doesn’t want to use it anymore. So they cut it up and continue making payments . They ask the credit card company to close the account. The credit card company puts a message, ‘closed by credit grantor.’ This results in a R9 on the credit card and affects a credit score badly. It is a reason for an application to be declined. It says to a lender that client could not pay the card and the credit card company closed it .The other side of asking a credit card company to close off a card when it is fully paid, is a message on the bureau, is ‘closed by consumer.’ This is a good message, It says you no longer wanted the card and you paid it off. It says you can handle credit responsibly.
It is important to check your credit at least annually to ensure everything is well with your credit and there are no mistakes. These can be other credit cards or loans or collection items that do not belong to you. - Your credit card limits should be at least $2500 or more. If you have one card with a limit of $1000.00 it does not give a lender a correct picture of how you can handle credit, if you are applying for a mortgage of $500000.00
Aim for 2 cards with at least $2500.00 limit.
Credit cards and loans are necessary to building a healthy credit bureau. These must be used responsibly so that you can have a better score, and hence get the necessary and intelligent credit you require for your present and future financial goals.
If you have any questions about how to improve your credit score, please contact me directly.
You’ve most likely heard that there are two certainties in life; death and taxes. Well, as it relates to your mortgage, the single certainty is that you will pay back what you borrow, plus interest. With that said, the frequency of how often you make payments to the lender is somewhat up to you! The following looks at the different types of payment frequencies and how they impact your mortgage. Here are the six payment frequency types Monthly payments – 12 payments per year Semi-Monthly payments – 24 payments per year Bi-weekly payments – 26 payments per year Weekly payments – 52 payments per year Accelerated bi-weekly payments – 26 payments per year Accelerated weekly payments – 52 payments per year Options one through four are straightforward and designed to match your payment frequency with your employer. So if you get paid monthly, it makes sense to arrange your mortgage payments to come out a few days after payday. If you get paid every second Friday, it might make sense to have your mortgage payments match your payday. However, options five and six have that word accelerated before the payment frequency. Accelerated bi-weekly and accelerated weekly payments accelerate how fast you pay down your mortgage. Choosing the accelerated option allows you to lower your overall cost of borrowing on autopilot. Here’s how it works. With the accelerated bi-weekly payment frequency, you make 26 payments in the year. Instead of dividing the total annual payment by 26 payments, you divide the total yearly payment by 24 payments as if you set the payments as semi-monthly. Then you make 26 payments on the bi-weekly frequency at the higher amount. So let’s use a $1000 payment as the example: Monthly payments formula: $1000/1 with 12 payments per year. A payment of $1000 is made once per month for a total of $12,000 paid per year. Semi-monthly formula: $1000/2 with 24 payments per year. A payment of $500 is paid twice per month for a total of $12,000 paid per year. Bi-weekly formula: $1000 x 12 / 26 with 26 payments per year. A payment of $461.54 is made every second week for a total of $12,000 paid per year. Accelerated bi-weekly formula: $1000/2 with 26 payments per year. A payment of $500 is made every second week for a total of $13,000 paid per year. You see, by making the accelerated bi-weekly payments, it’s like you end up making two extra payments each year. By making a higher payment amount, you reduce your mortgage principal, which saves interest on the entire life of your mortgage. The payments for accelerated weekly payments work the same way. It’s just that you’d be making 52 payments a year instead of 26. By choosing an accelerated option for your payment frequency, you lower the overall cost of borrowing by making small extra payments as part of your regular payment schedule. Now, exactly how much you’ll save over the life of your mortgage is hard to nail down. Calculations are hard to do because of the many variables; mortgages come with different amortization periods and terms with varying interest rates along the way. However, an accelerated bi-weekly payment schedule could reduce your amortization by up to three years if maintained throughout the life of your mortgage. If you’d like to look at some of the numbers as they relate to you and your mortgage, please don’t hesitate to connect anytime; it would be a pleasure to work with you.
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!
