5 Credit Mistakes You Should Never Make

What is a Credit Score?

Your credit score is a number typically between 300-900. It is determined by the information in your credit report, which is a detailed report of how you’ve used credit in the past. Credit scores from 660 to 900 are generally considered good, very good, or excellent. 

If you plan on ever borrowing money, you’ll want to avoid the following to ensure your credit stays in tip top shape:

1. Skipping Payments: Your payment history is the biggest factor affecting your credit score. Late or missed bill payments can stay on your credit report for up to seven years, making it difficult to qualify for loans and credit in the future. Pay your bills on time and consider setting up automatic payment or reminders to avoid missing due dates.
   
   
2. Using ALL Your Credit: Your credit utilization is the amount of credit you’re using compared to your credit limit. Typically, lenders like to see a credit utilization ratio at or below 30%. For example, if you have $20,000 in credit available to you, your balance owing shouldn’t be higher than $6,000. According to Equifax, your credit utilization ratio accounts for a significant portion of your total credit score. In fact, it’s often the second most important factor, following payment history. Avoid maxing out your credit cards, and if you can handle the extra temptation, consider increasing your credit card limit or applying for another card.
   
   
3. NEVER Using Credit: If your credit report has little or no information, potential lenders will wonder why, and they could see it as a sign of a previous bankruptcy. Having a mix of different types of credit, such as credit cards, loans, and lines of credit, can be seen as positive and can help improve your credit score.
   
   
4. Applying for too much credit: Every time you apply for credit, the lender will do a hard inquiry on your credit report, which can temporarily lower your score. Space out your applications or only apply for credit you actually need.
   
   
5. Ignoring your credit report: It’s a good idea to check your credit reports at least once a year to track your credit health and to monitor for inaccuracies or signs of a data breach. The two main credit reporting bureaus in Canada are Equifax and TransUnion. Each bureau uses its own proprietary formula to calculate credit score, and the specific factors may vary slightly between bureaus. You can access your credit score from either bureau, and from other sources, for free online. Checking your own credit is a soft inquiry, so you can check it as often as you want without worry that you’ll damage your credit score. You can access your Equifax credit score here,your TransUnion credit score here , and your Credit Karma report here. 

Maintaining a ‘good’ or better credit score makes it much easier to qualify for a loan at a great rate so you can be ready to make that big purchase. If you’ve already made one or more of the above mistakes, don’t fret. With consistent effort it is possible to improve your credit over time. If you’re looking for personalized answers to your credit questions, ABCU advisors are here to help. Reach out to our team at 1-888-929-7511.