: Karen Cay

By Jasmin Brown - Licensed Insolvency Trustee

BDO First Call Debt Solution

4 Ways You May Be Harming Your Credit Score

Feb 28, 2019 | 10:29 AM

Your credit score is an important piece of your financial health. Sometimes people are overwhelmed by their credit reports and the anxiety around having good credit can cause them to avoid the subject all together. Here are four ways that you might be hurting your credit score, and four tips to improve it.

1. You are missing your payments

If you miss making credit card or loan payments, lenders are likely to report it to the credit reporting agencies. If you miss more than one payment you can be considered in default.

Tip: Add your bill and debt payments to your calendar and set a reminder a few days before each payment is due. Making your payments on time, every time will positively impact your credit score.

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2. You are making only minimum payments

You might think that making the agreed-upon minimum payment is holding up your end of the bargain. And it is — for your lender. But as far as your credit score goes, it is not helpful.

Making only a minimum payment not only means that you will carry a debt for longer and pay more interest, it also signifies that you might be overextended and unable to pay off that debt more quickly.

To future lenders, that’s a red flag. It means you could be denied a competitive interest rate on a future loan, or you may not qualify for a loan at all.

Tip: Pay more than your minimum payment whenever can, especially if you have a high balance on your credit card. To build good credit, try to keep your debt low enough so you have enough cash to pay it off in full within just a few months.

3. You are ignoring the “35 per cent rule”

If you want good credit, you should aim to only use 35 per cent of your available credit at any time. That is what’s known as your credit utilization ratio. Credit bureaus and lenders like to see that you are not overly dependent on credit. Anything above 35 per cent could red flag you with lenders as a higher risk.

Tip: Use credit as a payment tool, but don’t depend on it. If you are depending on credit to make ends meet, or if you have accumulated personal debt that you can’t pay off, consider meeting with a Licensed Insolvency Trustee (LIT) to review your debt relief options.

4. You are avoiding credit entirely

If you want a healthy credit score, you cannot avoid credit entirely.

Credit bureaus look at your credit usage and history to determine your risk and your score. If you don’t have a credit history at all, they cannot say for certain whether you are a low or high risk borrower.

Tip: To build good credit, use different types of credit regularly, but in low amounts. Show that you can borrow and repay responsibly.

Don’t let the anxiety of having a good credit score make you avoid checking and maintaining it. Building good credit does not have to be difficult. For more information and tips, visit the Credit Reports and Scores page on the Government of Canada website.

BDO First Call Debt Solutions

147-15^th Street East Prince Albert S6V 1G1
Phone: (306) 765-3328 or 1-855-220-1705
https://debtsolutions-princealbert.ca/

Jasmin Brown, Senior Vice President, LIT

Jasmin is a Senior Vice President with BDO First Call Debt Solutions. She is a Chartered Professional Accountant, a Licensed Insolvency Trustee and a Chartered Insolvency and Restructuring Professional.