By Scott Sanders
How healthy are your habits? Your financial habits, that is.
As summer winds down and we return to normal routines, it’s important to develop some new ones that will help us get the most out of life. When one thinks about establishing healthy financial habits, I’m willing to bet few people consider starting with their credit card.
A credit card is a convenient means of payment. Just as important though, is the large role it plays in cementing your financial future. Carrying and using a credit card helps you establish a credit history and eventually a credit score.
A credit score is a number between 300 and 900 that shows banks and other lenders how financially responsible you are. The higher your number, the more likely lenders believe you’ll pay your loan off on time.
As a result, they are willing to lend you money and probably at lower interest rates. You build your credit score over time through regular financial actions, such as paying bills on time. Whether you’ve just received your first credit card, or have been carrying one for years, it’s never too late to develop these strong habits and put your financial future on solid ground.
In order to establish a credit history and build a strong credit score, you have to use your card. A healthy habit is to charge just a few purchases each month. Be sure not to overuse your card, however.
A large part of your credit score is determined by the amount of credit you are using compared with how much you have available. The Financial Consumers Agency of Canada FCAC recommends using no more than 35% of your available credit.
Rack up bills and edge closer to your limit and lenders may assume you’re relying on credit too much, resulting in a possible downgrade in your score. Besides, you’ll want as much money available in an emergency.
Pay all your bills on time and pay the full amount.
Perhaps the biggest factor impacting your credit score is how timely you pay your bills. The longer your record is problem-free, the stronger your score will be.
Late payments, even just a few, can knock your score and stay on your record for years. If you do run into problems paying the full amount, try your best pay the minimum balance, but don’t allow this to become a habit. Make it a priority to pay your entire bill off before the due date.
Be selective about who you authorize to request your credit bureau.
Numerous inquiries from credit providers, especially within a short period of time, can put pressure on your credit score.
Once your monthly statement arrives, study it closely. Ensure the amount you paid at the cash register matches your statement.
Call your card provider the moment you notice anything that doesn’t make sense. Also watch for transactions you don’t recognize – although fraud is very rare, it does happen. Report anything the moment you notice it.
Check your credit reports.
There are two main credit reporting agencies that keep track of your credit history, Equifax and Transunion.
These companies provide lenders with a detailed report of your payment history, loans you’ve had and credit cards, both past and present.
Lenders use this information to determine how likely you may be to pay your loan back on time, and therefore, what your interest rate should be when obtaining a loan.
But these reports can contain errors that can hurt your credit score, causing you to pay more when borrowing money.
You can obtain slim-down credit reports for free once a year from each company or for a small fee, you can receive more detailed reports.
The financial choices you make today will stay with you for many years to come.
They can either save or cost you money. Make these tips a priority and you’ll thank yourself for years.
Scott Sanders is the Director of Card Solutions with Alberta-based Bridgewater Bank.