Common Credit Score Mistakes and How to Avoid Them
Every day Canadians make countless credit mistakes without realizing it. To help avoid these costly mistakes, here are some common credit score mistakes to avoid.
Skipping Your Payment One Month and Getting Caught up the Next
If you can’t afford to make your payment on a credit account, you might think that there’s no harm in skipping the payment one month and getting caught up the next month. The amount owing will be paid after all, so what’s the issue?
Unfortunately, this will hurt your credit score and here’s why. It will show as a late payment in the current month and will still reflect as a late payment the following month, even if you pay the owing amount.
If you can’t afford to make the full payment, a far better approach is to make the minimum payment. If you have revolving credit, such as credit cards and lines of credit, the minimum payment is usually very affordable. You’ll make your payment on time and can catch up next month by completing the minimum amount.
Not Regularly Checking Your Credit Report
Do you never or very rarely check your credit report? This could be problematic. Sure, everything might be okay with your credit; however, if there’s an issue, you won’t know until you apply for new credit, such as a mortgage. Imagine buying a home, only to find out that something outdated on your credit report is causing an issue for you being approved for a mortgage.
To avoid a situation like this, it’s a good idea to check your credit report and credit score regularly. You can do that by signing up with the credit bureaus Equifax and TransUnion, as well as signing up for third-party services that provide you with access to your credit score and report. By doing that, you can make sure you aren’t going to be surprised by any issues you weren’t aware of.
Applying for a Loan without Speaking with Your Mortgage Broker
You may be pre-approved to spend up to $1M on a home, but if you take on a new car loan, it could reduce the amount you’re pre-approved for by $100k or more.
Before taking on any new debt, speaking with your mortgage broker is essential. Your mortgage broker can let you know how it will or won’t affect your mortgage pre-approval.
You’d hate to make an offer on a home, only to find out that you don’t qualify for the amount you thought you allowed for because of the new car loan you just took out, leaving you scrambling to find alternative financing last minute.
Closing Too Many Credit Accounts at Once
You may think that you’re doing a good thing by closing old credit accounts you never use. However, quite the opposite may be true. By closing old credit accounts, you’re potentially erasing years of good credit history. That’s because lenders value the credit history from credit accounts that are open a lot more than credit accounts that are closed.
By keeping a credit account that’s in good standing open and regularly using, it can go a long way in continuing to help you in the future.
The Bottom Line
Are you considering doing something with your credit, but you’re not sure if it will help or hurt you? Speak with our mortgage experts today to help you decide whether it’s a good move.
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