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When used effectively, a credit card can play an important role in financial well-being.
"How is your credit?"
Most of us have an idea a vague idea, but no concrete answer so we sheepishly answer what we think. Or hope. Well, it's time you had some clarity.
Why is a Credit Score Important?
It could save (or cost) you thousands of dollars.
How’s that for important? Though it’s not the only factor, your credit score is often a key factor in determining if you’ll be approved for a credit application and for how much. This means it could be the deciding factor on whether you're able to purchase a new car or home – as well as how much you will be approved for. Additionally, it will be a factor in determining your rate of interest or how much the credit will cost you. The higher your credit score, the more likely you are to be approved for a credit application and the more money it will save you. The reverse is also true; a low credit score will cost you.
What is a Credit Score?
Basically, it's a number to gauge your creditworthiness or your credit health. A lender may use it to determine how likely you are to live up to your future credit obligations. The actual mathematical calculation is too complicated and complex to worry about, but simply put, the number is based on your credit usage and history, including:
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- Your track record for repaying your loans and credit card balances
- How much money you currently owe on your credit accounts
- How long your accounts have been open
- The different types of credit you use or credit mix
- How much credit you use compared to the amount of credit you have available
- How often, and how recently you have applied for credit
You can build a better and stronger credit score
Your score isn’t written in stone. It will evolve and change with your repayment and credit behavior. Here are your top 5 tips to maintain or build a better credit score:
- Be punctual. Never be late. Make every single payment on time. Even if you can’t pay your credit card off in full, at least make the minimum payment. Late and missed payments, as well as collections, will have a huge impact on your credit score.
- Make living within your means a lifestyle choice. Pay off your credit card in full every month. Credit card debit is one of the more expensive debt vehicles. Black is the new black. If you do maintain a balance (lots of us do), keep your account balances below 35% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the outstanding balance below $350.
- Get the right mix. Have access to multiple, yet reasonable, credit products. Having too high or too low of a credit limit will harm your score. If your revolving credit products are maxed out, that will have a negative impact on your score as well.
- Don’t apply for credit too often. Having multiple “hard” inquiries on your credit file will damage your score. Other inquiries, for instance for employment or insurance, have little or no impact on your score.
- Check your credit report regularly. Fix any inaccuracies that may harm your credit health. If you find an inaccuracy on your credit report, you can contact the creditor associated with the account or the credit reporting agencies to correct it.
Talk with us! We're committed to helping you reach all of your financial wellness goals.
Admittedly, savings are usually your best source of emergency funds.
When savings aren't an option or you need access to more funds than your savings can provide, a credit card provides an alternative source of funds for life's unexpected expenses. Just keep in mind, a credit card can be one of the more expensive credit options; a line of credit may have a lower interest rate or be a better fit - or maybe you'll benefit from both depending on your unique needs and goals. There are advantages and draw-backs with every solution; we can help you nail down the right mix for you.
If your debit card isn't working, your credit card often will.
Debit cards and credit cards clear on different platforms and operate on different back-end systems. If one platform is unexpectedly down, or there is a planned outage or upgrade on a system, typically your other card will work.
Not to mention, some retailers, like hotels or subscription services, require a credit card to process your purchase.
Boost your financial know-how
Check out Enrich - a free, award-winning financial education platform.
Find all the things you need to get started on your financial wellness journey!
Crash Course on Credit Cards
Before your first-year university student even unpacks, he or she may be offered two or three credit cards. That’s why it’s so important to home school your children in Credit 101 and give them ground rules for using credit before they even leave home.
The Keys to Financial Freedom
Are you living paycheque to paycheque, looking to put some money away in a savings account? Or maybe you’ve got some money saved up, but have no idea what to do with it. If you are ready to improve your financial situation, here are simple and easy steps you can take in order to get to where you want to be financially.
The Credit Book
Before making a decision to use credit, there are certain facts you should know – both in regard to your own financial position and about the types of credit available to you. This booklet will help you make better, brighter, more informed credit choices.
