Mortgage Blog

Credit Clean-Up!

September 29, 2022 | Posted by: Justin Emilio

It’s time to go back to school… for your finances! When it comes to cleaning up credit, there is no better time than now to recognize the importance of your credit score and check if you are on track with your habits. 

To get started with a credit clean-up, there are a few things you can do: 

Pull Your Credit Report: For most of us, our credit score is something we only think about when we need it. However, if you are unsure of where you stand, this is a great time to find out! The Fair Credit Reporting Act lets you get one free credit report every year through Equifax or TransUnion. Pulling your own credit report results in a “soft” inquiry on your report and will not affect your credit score. Click here to get your free credit report today! 

If You Find Errors, Dispute Them: When doing your annual credit score review, it is a good idea to go through line-by-line and confirm no errors. If you find any errors, report and dispute them immediately as they could be affecting your score. 

Consolidate Your Loans: One of the best tips for managing your credit and working towards future financial success, is to consolidate your debt. Consolidating debt means reducing multiple loans to a single monthly payment, which typically has a lower interest rate, allowing you to pay down the balance faster. One of the best ways to do this is by using the equity in your home through a Home Equity Line of Credit, or a refinance of your mortgage. These products typically come with the lowest interest rate possible when consolidating debt.

Once you have put the effort into cleaning up your credit, you will want to keep it that way a few tips for maintaining your credit and maximizing your financial future include: 

Pay On Time: This seems pretty straight forward, but is often forgotten when life gets busy. Paying bills on time is one of the key behaviours lenders and creditors look for when deciding to grant you a loan or mortgage. Ideally you pay the full amount required each month, but if that is not possible, you must make the minimum payment. If you do miss a payment by a few days, don’t worry! As long as you make the minimum payment within 30 days of being due, it will not show as late on your bureau.

Set Up Automatic-Payments: By setting up automatic payments on as many bills, credit cards and loans as possible, you minimize the chances of a payment being missed, and your credit score dropping. A good strategy is to set up all bills (cell phone, internet, hydro, ect) to be paid automatically with a credit card. Then set all credit cards, lines of credit and loans to either be paid off in full automatically each month, or have the minimum monthly payment made. 

NOTE: If you have a credit card or LOC that is not linked to your bank account for automatic minimum payments, you can still set up a transfer for your bank account for the minimum payment possible. Typically, this is 1% of your balance, so to ensure you always make a minimum payment, send a transfer each month for 1% of your card's balance on the day before your payments are due. That way, no matter your balance, the minimum will always get paid. 

Stay Within Your Limit: This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit is not advised. Your goal should be to use 70% or less of your available credit. For instance, if you have a limit of $10,000 on your credit card, you should never go over $7,000.

NOTE: If you find you need more credit, it is better to increase the limit versus utilizing more than 70% of what is available each month. 

Pay Your Debts: Whether you have credit card debt, a car loan, line of credit or a mortgage, the goal should be to pay your debt off as quickly as possible. To make the most impact, start by paying revolving debts (credit cards, lines of credit) that are over 70% of the limit first. Then start paying off debts which have higher interest rates first and focus on lower interest rate debt once these are under control.

Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower. As part of our pre-approval process, we always preform a full credit review, provide you your score and advise on any ways you can improve. If you’d like to know more about your score and the best ways to improve it, book a time to chat.

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