It can reach the point where you don’t want to pick up the mail. There isn’t much to look forward to; after all, who writes letters any more? The daily mail invariably consists of a few pieces of colourful junk mail and yet another pesky bill to pay.
Believe it or not, those pesky bills are the ticket to your financial wellbeing. The way you handle those bills can make a difference that you can measure on the bottom line of your family finances.
A good credit score (the higher, the better) is rewarded with good loan rates and access to money when you need it. A low credit score can cost you extra – even on your mortgage, where the debt is secured against your home. And you may be refused credit just when you need it most.
You may want to check your own credit score once a year – to ensure that all the information in your file is accurate. You have a right to access your own credit records through a service like Equifax. There may be charges for mailing or internet downloading of your files, but it can pay to know your own credit score.
It’s helpful to understand what’s behind that credit score: what impacts your score and what lenders are looking for when they check your credit.
When those pesky bills come in, do you pay them on time? Your payment history is a significant factor in your credit score. If you have paid bills late, had an account that has gone to collections, or declared bankruptcy, then your credit score will drop accordingly.
How much money do you owe? Lenders will look for a nice comfortable buffer between your debt and your credit limits. If your credit card or your line of credit are always teetering at the top of their limits, that is likely to have a negative effect on your credit score.
How long is your credit history? Lenders will be interested to know how long you’ve been a borrower. If you have a long credit history with a good payment record, you will score high in this component. A short credit history makes it difficult for lenders to assess your risk – though if you pay your bills in a timely way and maintain low credit balances, these good habits can offset a short history.
Have you applied for new credit lately? A lender will be able to see if there have been other “inquiries” on your credit report. If you have requested new credit several times in a recent period, your score may be affected. Don’t worry about routine checks or inquiries from your existing creditors. Those inquiries should not impact your score.
How much credit do you have and what types of credit do you use? Both too much and too little credit can lower your credit score. Lenders will be looking for a record of established credit accounts with good payment histories. Too many credit cards, or accounts with high-interest finance companies can affect your credit score.
So what doesn’t affect your credit score? Personal information such as your race, religion, sex or marital status are neither recorded nor scored in your credit history. And, perhaps surprisingly, your salary, occupation and employment history are also not relevant to your credit history.
This year, whether or not you intend to take out a mortgage or borrow money, you should check your credit history and ensure that all the information contained there is accurate. You want to know what any future lender can see. Secondly, make those pesky bills in the mailbox your new best friends. Be systematic about your bill paying routine and reap the financial rewards!
For more great information, call or email us today!
Ron Kirby is a Mortgage Planner with Mortgage Architects
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