Your Personal Credit – Know The Score

Do You Know What Your Credit Score Is?

….if you don’t you are certainly not alone. It is hard to get by in today’s society without having some sort of credit, yet most people are not aware of the health of their credit. I am going to talk briefly about some of the misconceptions I come across when dealing with people and their credit.

Wrong. It is almost better to have bead credit rather than no credit. Without a credit history the lender can not determine the risk associated with lending money to you. They can’t see a history of paying your debts on time and they have no idea how you are going to handle paying what will probably be the largest debt you will ever take on in your life. Atleast with poor credit the lender knows you have a hard time with debt and can price your loan according to the risk associated with lending to you.

My Advice

If you are thinking of getting a mortgage and currently have no or little debt I would suggest you start trying to get some more credit. I know it seems counter intuitive, but most lenders require you to have atleast two active pieces of credit (car loan, credit card, unsecured loan, line of credit…etc). They also like to see about $2,000 in total available credit. Having $500 in credit outstanding just won’t cut it in most cases. The key is to use the credit and use it responsibly. Even if you just charge $20 a month and pay it off when you get your statement, this will atleast demonstrate your ability to handle debt.

Misconception #2 – I have quite a bit of debt….there is no way I can get a mortgage.

Wrong. This statement is just as false as the first one, and I would say I actually hear this more often. Just because you have what you consider to be a significant amount of debt does not necessarily mean you are not an attractive candidate for a loan. In fact, the opposite could be true. Having a healthy amount of debt and managing it well is exactly what the lender wants to see. You are demonstrating your ability to be a responsible mortgage holder. Where you will get into trouble is when you max out all of your credit and only pay the minimum balance each month. This is a clear signal to the lender that you are stretched to your limit and adding a mortgage to the pile of debt will only make things worse. Often times I will see a credit report with a poor score, but no missed payments showing. A closer look will normally reveal the credit lines are close to their limit and probably only minimum payments are being made.

What Can I do To Improve My Credit

Well, if you have no credit or little credit…go get some. It can be a department store card or a Citibank Visa. If you are having a hard time getting credit, go to your bank and ask for a secured credit card. In this case the bank will take a deposit to hold for the total limit of the card. If you were to default they already have your money to cover the debt. Once you have proven you are responsible with credit they will normally convert the credit card to a normal Visa and return your deposit. This is one of the most affective ways of building or restoring damaged credit.

If you are an individual that has all of your credit lines maxed-out, you need to start paying down your debt. You don’t have to pay it off completely, you just need to knock 20% of the balance off. This will show you have a bit of a credit cushion and you are not stretched so thin.

To take a look at your credit score visit www.equifax.com and order a copy of your credit report. It is recommended you do this once a year to make sure there are no inaccurate items on your report.

I hope this helps. Please feel free to give me a call or leave a comment below. Part of any good Mortgage Agent’s job is credit counseling and helping people get on the right track to home ownership.

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• Take My Credit Score Poll | YourLowMortgage.ca, June 8th, 2010 on 8:33 am

  [...] a follow up to yesterday’s post on managing credit I thought it would be interesting to see what my readers know about their own [...]