Whether you own property or not, there are times when life just happens: an unexpected bill or an emergency arises that puts you in place where your credit is the one to take a hit. Credit can be impacted negatively from cards with balances over 75%, missed payments on trade lines and collections.
With so many ways credit can be impacted, there are also key ways in which you can rebuild your credit, and pay off your debt load.
Know your own credit score:
Pull your own credit bureau report through Equifax or TransUnion. This will provide you with a good starting point as you will be able to clearly see any missed payments, collections or even mistakes on your record. Any errors can be corrected. It may be a slow process, but the benefit to your credit report can be substantial. The general rule is that a credit score over 680 is considered good, but the higher your score the better.
Negotiate interest rates:
One key way to stop your debt from growing is by negotiating interest rates on your trade lines. If you have travel cards for points, but the interest rate is 19.99% or more, these cards can be changed into a lower interest card. This will decrease your monthly minimum payment and interest charges.
75% of balance:
With any trade line, once you go over 75% of the card’s allowable balance your credit score slowly decreases due to the debt load. If you have room, balancing out your cards can be a simple step to improving your credit. You can also ask for a limit increase on the card: used not to withdraw more funds, but to give more overhead so you can get below the 75% threshold.
Budget by cash diet:
When focusing on paying down your debt, it can be a challenge to decide what to pay first and how to free up funds to do so. Making a budget is a great start to paying off your debts, but how do you implement it to be effective? It’s simple: a cash diet. Looking at your new budget, withdraw the cash you have budgeted to live off until you receive your next paycheque. Unlike using a debit or credit card, with cash: once you run out, you’re out. This is a great learning tool to stay within your budget.
Reduce credit pulls:
There is a misconception that a credit pull automatically reduces your credit score. When it comes to credit pulls, the more pulls over a short period of time is what has a negative impact. For example, if you go car shopping and the dealership sends your financing application to four different lenders before getting to the one which approved you – each counts as a credit pull.
Use mortgage equity:
This by no means is an ongoing solution, or do we ever recommend using your home like a bank account, but if you have a large amount of debt plus equity in your home, it may be the best solution for you. Most mortgage lenders will allow you to take out up to 80% of the home’s current value. The great solution with utilizing your home equity is you increase your cash flow by paying all your debts. The amount of equity you pull out will increase your monthly mortgage payments, but because line of credits and credit cards have higher interest rates, you will still be in a better financial situation. This will also drastically improve your credit score because your debts will be paid off in full. Don’t forget to ask your CENTUM Mortgage Broker how you can utilize your equity.
Whether you are a home owner or not, there is always opportunity to improve your credit score. With these tips, you can start to work on building up or improving your credit score.