How to Manage Credit
The truth about credit and how best to manage it.
Your credit awareness, it’s an exciting feeling to get your first credit card, hand it to a store merchant and simply enter your pin and walk out with your merchandise. It can be very tempting to use your card up to the limit or even past the limit, however this is the worst thing you can do. It seems like Free Money, but it is very far from that. Credit is like a continual test, the higher your score the better chance you have at being approved for any other loan in the future. Your credit score will either go up, down or remain the same. The beauty of this test is that I will give you the answers!
Examples on how different actions affect your credit score: The following examples will increase your credit score.
- Paying the full balance on time each month.
- Monthly payments made on time.
- Keep outstanding balances bellow 65% of the available limits on all credit cards and lines of credit.
- Limit of $2500.00 or more on all credit cards and lines of credit.
The following examples will decrease your credit score:
- Continuously making late payments on your credit card.
- Applying for too much credit in to quick of a time line.
- Exceeding your credit limit. Although your credit card company may not decline the transaction the reporting on the credit bureau would be a negative one.
- Carrying high balances on multiple credit cards.
Building a strong credit profile
There are so many credit card options out there from every department store, gas station, bank, etc. Many offer a wide array of reward points, travel points and such. Here are tips on how to build a strong credit profile.
- Department store credit cards, not a wise choice the interest rates are so very high 28% on some and the credit bureaus do not rate them highly when you use them so if there is no immediate benefit of having a department store credit card I would stay clear of them.
- Major credit cards such as Visa, Mastercard, and Amex that your financial institution provides are the types of credit card you should apply for. When choosing a credit card, make sure you learn about all the details of the card: current promotion, interest rate on purchases and cash advances, annual fee, rewards being offered and the ability to use them with out limits. Pick credit cards based on your intended use and rewards that suit your lifestyle. Make sure you keep good records of your use and pay off your credit cards each month.
Two cards only
You only really need two major credit cards with limits of at least $2500.00. If you have many cards, it’s easier to forget to make payment on time. Also, if you were to lose your wallet, it would take more time to resolve.
Other ways to build credit
Loans: car or student loans are an excellent way to build credit if you can commit to those monthly payments for the entire term of the loan. It can be overwhelming for a young person to sign up for a 4-6-year loan with large monthly payments especially if you aren’t sure when you will be starting full time employment.
RRSP Loans: an excellent way to build credit, savings and income tax benefits simultaneously. This loan should be either one or a two-year term.
Lines of Credit: It is an excellent idea to get an unsecured line of credit from your financial institution. Your financial institution may ask for some additional employment information especially if you want a limit of $10,000.00 or more. Try for a limit of $5,000.00 to start. As a result, the interest will be far less than credit cards.
Money management recommendations:
Set up payments to be made automatically. This saves you from missing a due date and if your away on vacation the payment will be made automatically for you.
Save on interest. If you cannot payoff the full balance in any given month use your line of credit with the lower interest rate to make the payment. Then slowly pay off your line of credit.
Why paying cash after bankruptcy is the worst thing to do.
Many lending institutions realize that life can have its ups and downs. These lending institutions look at how people bounce back from these situations. The worst thing you can do is pay cash for everything. You need to start re-building your credit instead. At Ontario Lending Solutions we have a blueprint. We offer for FREE to clients looking to improve or rebuild their credit. Unfortunately it is a process, so plan on at minimum 1 year to rebuild credit sometimes longer. When you start building your credit, lenders will see that you can manage credit responsibly and that you can repay the funds advanced to you. You can’t expect an institution to lend you substantial money for a mortgage unless they see you have a great, new track record of 1 to 2 years.
What to do to rebuild your credit score
Once you have been discharged from bankruptcy, get two secured credit cards of at least $500.00 – $1,000.00 limit on each.
Before getting a mortgage, any collections that show up on your credit bureau will have to be paid out. It is best to pay them out as soon as they go to collections so that they don’t have a negative impact on your credit ratting.
** Note you can often pay as little as 25 cents on the dollar when negotiating to pay out collections. At Ontario Lending Solutions we help you with this process, remember to always ask for a confirmation receipt stating the collections is paid in full and settled. Keep this receipt we will need it when the times comes to process a request for a mortgage.
When to rescue your credit
If you own a home and your credit cards have suffered substantially from high interest rate debt, it is worthwhile to consider consolidating. Being able to afford monthly payments is more important than just trying to pay down a mortgage. Be realistic; consider if your income is better spent paying 3% annual interest rate on a mortgage or paying over 28% annual interest on a credit card.
If you looking to buy a house, and are having credit troubles, talk to one of our qualified mortgage specialists by calling 905-517-4674.
Need tips on rebuilding credit?
Read our Tips to Rebuild your Credit page