Information Center For Home Buyers
6 Ways to Kill Your Credit Score
Lenders will charge you more or flat-out reject you if you show up with a low Beacon score. Here’s how you may be doing yourself harm.
1. Be a big spender at the wrong time: The bigger your total balance as a percent of your total credit limit across all your credit cards, the lower your score will be. Beacon scores range from 300 to 850 - the higher the better, with anything above 760 being the most desirable. Experts estimate you lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance. Ideally, credit experts say, you never want your balance to exceed 30 percent of your credit limit. It’s always good to pay off your balances every month. To boost your score: Don’t charge anything for at least 60 days before applying for a loan. If you can’t pay off your total balance in full, at least keep it under 30 percent of your total credit limit.
2. Be a payment-slacker: Sending in your loan or credit card payments late can really hurt. Experts estimate when you’re 30 days past due and your balance is still unpaid, your score could take a 60-point hit. Late payments from your past that you have since paid off will have less and less of a negative effect on your score as time goes on. To boost your score: Pay your bill in full and mail it as soon as it arrives or at the very least the minimum due. If you are late one month, be sure to pay off what you owe as soon as possible.
3. Be too thin: When it comes to your credit record, fat is good, emaciated bad. Even if you’re the most responsible, on-time, in-full bill payer on the planet, your credit score won’t be as high as it could be if you have just one credit account. The reason: Your credit profile is too thin and lenders ideally like to see a potential borrower responsibly managing a mix of revolving debt (such as credit cards, where you can reuse the credit after paying it back) and installment debt (such as a car loan or most mortgages, where you pay the same amount every month for a certain period). To boost your score: Consider opening another credit-card account or taking out a car loan or small bank loan.
4. Be too young and eager: Old credit accounts count more than young ones in your credit score. Lenders prefer borrowers who have responsibly managed the same accounts for years. That’s a more reliable indicator of creditworthiness than a few months of exemplary behavior on a new account. Lenders also don’t like to see a borrower who’s gone on a credit binge, applying for a lot of new accounts or loans in a short period. Every time you apply for new credit, your score may be dinged by 5 points. To boost your score: Avoid applying on your own for a lot of loans and credit cards, particularly in a short period.
5. Be too tidy: The bigger your balance relative to your credit limit, the lower your score. But while it may be tempting to close out a credit card account when you transfer the balance to a lower-rate card, you may inadvertently hurt your score. That’s because your total balance stays the same but your credit limit goes down when you close an account. Say you have three credit cards with a combined credit limit of $24,000 ($8,000 each) and you owe $6,000 total. Your balance represents 25% of your credit limit. If you then close out one of your accounts, your credit limit goes down to $16,000 but your debt is still $6,000, which now represents 37.5% of your credit limit. To boost your score: Don’t close unused accounts when you transfer debt.
6. Be too nonchalant: You may be a great credit risk, but your score won’t reflect that if there are errors in your credit report. The last thing you need is to have someone else’s delinquencies wrongly assigned to you. To boost your score: Order a credit report once a year from www.Equifax.ca and check it carefully!