By Leah Ryder
Spin classes, green juices and fitness trackers are just some of the latest health trends to come our way. Unfortunately, these fitness fads overlook a key part of our overall well-being - our credit health. (In fact, expensive health memberships and gadgets may actually damage our credit if not budgeted for properly!)
Credit can affect your daily life, and weak credit can fail you when you’re trying to reach the finish line of a mortgage application or loan request.
Luckily, healthy credit exercises can be built into everyday money habits. In fact, you can start right now. Right from your couch. How’s that for a handy workout?
5 ways you can build healthy credit on a daily basis
1. Make consistent payments.
Think of making consistent payments as daily training for that big marathon. You may not know exactly when you’ll decide to run 42 kilometers in a row, but being prepared with regular training can make it possible.
In the same way, you may not yet know exactly when you’ll want to apply for a mortgage, but keeping your credit in shape now will help you close the deal when it counts.
Each time you make a payment more than 30 days late, a delinquency may be marked on your credit report. These marks can seriously affect your credit score.
Set yourself up to always pay on time, recommends Trevor Van Nest, Certified Financial Planner™ and owner of Niagara Region Money Coaches. “The best tip I have for improving your credit health is to never miss a payment on your credit card by setting it up on direct debit/pay-in-full mode automatically.”
He adds that most banks and credit card companies have a pre-authorized debit (PAD) option that you can set up so that your card is paid in full automatically from your chequing account each month on the due date.
It’s important to know that, should you not have enough funds to cover the bill, your account may go into overdraft, which depending on the type of overdraft service you have, can be an expensive error.
For example, if you signed up for TD Bank’s chequing account overdraft service and overdraw your account by more than $5, you’ll be hit with a $35 penalty.
There are many different overdraft protection offerings available at financial institutions in Canada, so research your options in advance.
Regular payments can benefit your credit health, as your payment history is the most important factor contributing to your credit score.
2. Use credit in moderation.
Carrying a balance on your credit card month over month could be detrimental to your credit health. And how much you use of your credit limit can also impact your financial health.
Credit card utilization is a ratio calculated by dividing your total balances across all cards by your total credit limits. According to the Financial Consumer Agency of Canada (FCAC), you should try to keep your utilization to below 35 percent of your limit to improve your credit health.
Responsibly using a manageable amount of your total credit limit tells lenders and bureaus such as Equifax and TransUnion that you may have an easier time paying back debts in the future.
Plus, it’s good for your bottom line. The only thing better than a low-interest credit card is not paying interest in the first place.
3. Practice good report form.
Your credit report isn’t always perfect.
Part of keeping in good financial shape is ensuring that your financial records are accurate. Heather Battison, vice president of TransUnion Canada, recommends regularly checking your report to make sure the information is accurate and up-to-date: “Inaccurate information can negatively impact your credit score, which is why it’s important to report any inaccuracies to the credit bureaus as soon as possible.”
The FCAC provides detailed instructions on how to report and correct errors properly.
The good news is that “regular” doesn’t mean every day. TransUnion points out that an annual review is a good start for score maintenance. You may also want to consider using a credit monitoring service year-round that can flag potentially fraudulent marks or other issues that could affect your lending options.
Credit Karma allows you to access your TransUnion credit report and score for free at any time, which can make it easier for you to stay on top of your credit health.
4. Stay dedicated to your credit efforts.
Lenders use your history to understand how well you can handle credit.
According to MyMoneyCoach.ca and FICOⓇ, length of credit history can account for up to 15 percent of your score. Building a consistent history of good credit is a day in, day out effort so avoid closing credit accounts just because.
According to the FCAC, the maximum amount of time that credit information – positive or negative – stays on your report is six or seven years. How long the information stays on your report may depend on the credit bureau, where you live and the type of information.
Because of this, you should aim to have a lengthy and consistent record of good credit use.
5. Avoid binge credit requests.
Thinking of applying for more credit? You may want to do so with an understanding of hard inquiries versus soft inquiries.
When you view your credit score on Credit Karma or when creditors “pre-approve” you for a card or loan, this is considered a soft inquiry that doesn’t affect your score.
A hard inquiry is when a lender, bank or credit issuer submits a credit check in order to decide whether or not to issue you credit.
Each hard inquiry could drop your score. The impact may lessen after a short time depending on your credit behavior in other areas, but the inquiry will remain on your credit report for a couple of years.
Why you should start building your credit health today
Just like with building lasting physical health, none of these credit-building exercises are quick late-night-TV fixes that will turn your credit health around overnight.
However, when it comes to your credit, no step toward improvement is too small. Just keep moving toward your money goals, and you may reap the benefits of a happy and healthy financial life.