5 Easy Tips Towards a Good Credit Score

Have you ever wondered what factors make up a great credit score? Have you ever ordered your own credit report?  If not, then I suggest you do.  It is always a good idea to review your credit report 1-2 times a year.  This makes your information is correct and up to date, as well as to prevent fraud.

Here are Five Easy Tips to Build and Maintain a Great Credit Score:

1. Make Payments On Time: This is the most important factor when determining our credit score.  Every month we must make our payments by the due date.  Keep in mind that it could our financial institution up to 3 business days to receive and process an online payment.  Whether we pay the minimum required payment or we pay a little bit more doesn’t affect our credit score.  As long as the minimum payment is made on time our score will remain in good standing.

2. Don’t Carry a Balance:  The balance on our credit card is equally as important as making our payments on time. Our credit score is also determined by the amount of open credit and credit card balances owing.  Therefore, someone with a low credit score could be making their payments on time, but they continuously carry high balances on their credit cards.  Generally, our balances owing should be less than half of our credit limit. Therefore if your credit card limit is $10,000 you shouldn’t carry a balance of more than $5000.

3. Keep a Lower Credit Limit: Sometimes people think that our worthiness is determined by our credit limits.  If we have a $10,000 credit limit we feel that we have a higher standing with our financial institution.  However, this is not true.  Large limits are usually unnecessary, except for business credit cards.  A higher credit limit can actually hurt us in the long run.  We may be tempted to spend money on our credit card that we can’t afford to pay off if we have a high credit limit.  Credit cards are borrowed money, it’s not free. Remember when you swipe that card it is at a fee of 19.99% on your purchases.  I keep a limit on my credit cards that equals one month’s salary.  This way even if I do max out my credit cards I know that I will be able to pay them back very soon.

4. Close Unused Credit Cards: Don’t keep credit cards that you don’t use.  If you keep one unused credit card “for a rainy day”, it is better to use the card at least once a month.  Unused Credit Cards are not beneficial in any way.  If we don’t use our credit cards then the credit card company has nothing to report on our credit bureau.  Therefore, no payment history is established.  A lot of people think that their credit score will be very high if they have a credit card but don’t use it.  This is a huge credit myth.  The card must be used and payments must be made on time.

When we apply for new credit our approval is based on our ability to repay.  The new company will see that we have a credit card with an available limit.  They factor in a monthly payment of 3% of the total credit limit, not the current balance.  This is why unused credit cards are harmful to our credit score.

5. Don’t Apply Too Much: Do not switch credit card companies every month for an introductory interest rate.  Every time we apply for credit there is an inquiry on our credit bureau.  Too many inquiries on our bureau negatively affects our credit score.  Even though we may be transferring the same balance between credit cards, each inquiry hurts our credit score. (In Canada) A person is allowed up to 5 inquiries each year without affecting our credit bureaus too negatively.  Inquiries within 90 days of each other can also negatively affect our credit score.

(Photo By JasonRogers)

Kristina Tahnyak

Tahnya is a Certified Financial Planner and former Investment Advisor turned marketing and communications professional She holds a degree from Concordia University, is debt free and currently works in the field of digital marketing.