How to Show Your Credit Score a Little LoveApr 08, 2018
Even though credit scores can feel a bit intimidating sometimes, there are some basic facts about how they work that can help you feel more in control. By paying attention to your credit score, you could set yourself up for increased financial security and more opportunities in the future.
Here’s some insight to help you change how you feel about your credit score.
Good credit scores grow slowly
When it comes to developing a good credit score, patience is key. Your credit history can take time to develop. It can take years of attention and careful debt repayment to develop a high score.
That’s because credit scores aren’t about how infrequently you access credit. Your credit score is based on your history of credit use and repayment. If you haven’t been using (and repaying) credit, you won’t have a credit history — and you can’t have a good credit score.
So when it comes time to request financing, such as a mortgage or a vehicle loan, you may be at risk of being declined. A good credit history will prove to potential lenders, employers or landlords that you can manage and reduce your debt responsibly.
Don’t avoid using credit — instead, find a way to use credit smartly
Consider having a major credit card that you use for small payments so you can immediately reduce your debt with cash or pay in full to build up a good credit history. Your payment history has the largest impact on your score, so be vigilant about making all your payments on time, and pay more than the minimum payment.
One good credit score won’t always be enough
If you’re in a relationship and you’re applying for credit together, the worst credit score is the one that creditors will consider.
It might seem a bit unfair if you’ve built up a good credit score yourself, but from the lender’s point of view, they need to consider the worst case scenario. That means they’ll usually disregard the best score and only consider the worst of the two.
If your credit score is the lower one, you can’t depend on the “good work” of your partner to help average out your risk to lenders.
Creditors can look back over many years to understand the details of your credit history, so it’s tough to hide any missteps. That being said, a long history can also work in your favour. Lenders are used to seeing a variety of credit score blemishes, and no one expects you to be perfect. So for each misstep (like a late or missed payment), you need to build a detailed history of responsible credit repayment that shows you’re worth the risk.
Not all loans help your credit score
If you’ve ever taken out a student loan, you know that the responsibility is very real, and so are the payments (and interest) you hand over.
But when it comes to your credit score, the good work you do in paying back your student loans isn’t always counted. However, if you miss a payment, it’s likely that it’ll be reported to the credit bureau.
It can be difficult for young adults to build credit when they’re cash strapped and working hard to pay off a student loan that may not be contributing to a good score.
But the sooner you start contributing to a good credit score the better, so you won’t be denied for financing in the future. If you have an essential monthly payment, such as a cell phone bill or a utility bill, consider having it auto-charged to a credit card. Pay it off in full each month to help you build a credit history (without accumulating ongoing debt) while you focus on paying off your student loan. Once that’s paid off in full, you can re-evaluate how to use credit more often to increase your score.
Be patient with your credit score. Try to contribute to a good credit history every month by using credit in a way that makes sense to your personal and financial life right now without taking on debt that could become unmanageable.
Visit HowToSaveMoney.ca to read Stephen Weyman’s tips on how to increase your credit score.