Home »
The ‘right’ types of credit
By Riki Unrau
Your credit score is a mix of your past and present credit behaviour. From that car loan you got last year to the cell phone you have had forever, it is all on there.
How you manage this credit is what determines your overall credit score and how appealing you are to potential lender. One big misconception about credit is that all types are created equal. In fact, certain types of credit can actually hurt your score. Not to worry though because we are going to get down to the bottom of the good, the bad and the ugly.
Credit Cards
The best place to begin to build your credit is with the good old fashioned credit card. You don’t need anything fancy but try to get one with a limit reaching at least $1,500. And to help combat that high interest rate you can call the credit card company to have it lowered. Many people aren’t aware of this but most banks will lower your rate if you simply ask.
Loans
Most of us have a loan or two. Whether it is a student loan or business loan they all help towards building your credit. Most of these loans come with high limits so it is important to try and keep your balance below 30% or else it begins to drag your score down. This is true with all credit but especially so with high limit loans.
Store Cards
These cards can be tricky. Almost every store offers a store credit card and it can be difficult not to accept. But keep your pristine credit score in mind every time a clerk offers you one for $20 off your receipt. Too many of this type of credit looks bad in the eyes of potential lenders. Even if you don’t use the cards they still sit on your report and too many of them will bring your score down. If you have a favourite store or two that you shop in regularly and want their store cards then there is no harm in that. As with everything in life, moderation is key.
Cell Phones
While these types of credit don’t technically count towards your score in the eyes of lenders, if there are missed or late payments then it will detract from your lendability. As with all types of credit, it is incredibly important to make your payments on time. Many people don’t see their cell phone as a type of credit but it does show up on your credit report.
As a general guideline you don’t want to have too many of the same types of credit. A good rule of thumb is to have a credit card with a limit of about $1,500 and a bank loan or line of credit. This will keep your credit balanced without opening too many accounts.
If you would like more information on how to maintain a healthy and balanced credit report please consult your favorite Financial Planner or Mortgage Broker.
– Riki Unrau is a Mortgage Broker with Invis Williams and Associates, located at 828C Baker Street, Cranbrook, BC V1C 1A2 – 250-919-6402. For more try: rikiunrau.com
