Sands & Associates Vice-President and Licensed Insolvency Trustee Blair Mantin recently appeared on the Global News segment “Money Matters”. In this segment, Blair sheds light on some of the most common, yet often unknown issues that can impact consumer credit ratings.
Watch our clip below and read on for our list of Five Sneaky Credit Killers that can impact you:
Five Sneaky Credit Killers:
We’ve compiled a list of the top five mistakes that can hurt your credit rating. Many people may not even be aware of the impact of the following on your credit rating:
- Leaving unpaid cell phone bills / paying your bill late on a regular basis
- It may be hard to believe, but this is the number one reason why people are denied for mortgage financing!
- Even though this bill may be one of your smaller expenditures each month, it’s important to make this payment on time. If you are continually late, cell phone providers will update your credit report to reflect this pattern and may even assign collectors to start calling you and putting further black marks on your credit report.
- Don’t assume that because the balance is small, the impact will be inconsequential.
- Carrying too-high balances
- Credit utilization is a metric that plays a role in your overall credit rating.
- Lenders generally get nervous if you are constantly bumping up against your credit limit – this indicates a much higher risk than if the balance is paid off regularly or is kept at a relatively low number.
- The magic number is 50% – aim to keep your credit utilization below 50% of the available limit – i.e. if it’s a $2,000 card, keep the balance below $1,000.
- Closing old accounts
- Often when getting their financial house in order, individuals decide to simplify their finances by reducing the number of credit products they use – while the objective is laudable (who doesn’t want a more financially simple life), the impact can be negative!
- When you close a credit account, you lose ALL OF THE CREDIT HISTORY associated with that account. If it’s an account you’ve used for several years, and never been delinquent on, you might be hurting yourself by closing that account and starting to use a new credit product with which you have no history.
- When looking for mortgages, sometimes people go around and close credit products, thinking that this makes them more attractive to a lender. The outcome may be the opposite! The lender may now not have enough credit history on which to make a lending decision.
- Be careful when you close accounts and ensure you still have existing ‘legacy’ accounts that show your good behavior in the past.
- Co-signing debts
- When you co-sign a debt, you are agreeing to be responsible for 100% of the debt in the event the other person does not pay – it’s not a 50/50 responsibility as people may assume.
- Keep in mind that, even if you’re never required to make a payment on the co-signed debt, a series of late payments or defaults by the other party can have an impact on your credit rating. Regardless of whether you are the one missing the payments, your credit report will show the delinquency.
- Co-signing debts also puts relationships at risk – the intention to repay may be there, but not the ability and this can lead to difficulty in relationship.
- Don’t let anyone hurt your credit – life happens and even with the best of intentions to repay on behalf of the original debt holder, repayment just may not be possible.
- Applying for more credit
- When you are seeking out new credit and give permission for a credit check, this is generally noted in your credit report – the more often you seek out new credit, the greater the negative impact on your score.
- Creditors get nervous that making several credit applications in a short period of time shows some desperation, and therefore increases their risk.
- A better option – if you’re shopping for financing (for a car, or mortgage, for example) is to get a copy of your credit report yourself (this is free to do) and bring that report with you when you are meeting with the banks. Your report should have enough for them to quote you generally – and then you can give consent only to whomever you chose to do business with in the end.
Don’t panic if you’ve made some of these common mistakes in the past. It’s important to remember that credit ratings change over time and a great credit rating can be built in as little as two to three years. Even filing for bankruptcy, or a Consumer Proposal will not be reflected on your credit history permanently!
Sands & Associates is a multi-year Consumer Choice Award winning firm of Licensed Insolvency Trustees, with office locations throughout British Columbia. We understand that making the first phone call asking for help with debt can be difficult. At Sands & Associates we pride ourselves on our caring, empathetic approach to providing debt management solutions.
Debts impacting your credit rating, or life in general? Meet with one of our licensed professionals to find out how we can help you get out of debt today. Free confidential debt consultations are available in all of our local BC offices.