Are you planning to make a major purchase in the near future? Whether it’s a home or a car, unless you can afford to pay for it in cash, you’ll need to borrow money. But a home and car cost a lot of money. Before lenders hand you over the money, they want to make sure you have the ability to pay it back. That’s where your credit score comes into play.
Your credit score is one of the most important factors lender consider before approving your credit application. By regularly monitoring your credit score and taking steps to improve it, you’re more likely to get approved to borrow money under more favourable terms, helping you save money in the long run.
Now that you understand why it’s important to monitor your credit, let’s take a look at common mistakes you can make when you don’t monitor your credit and how to watch your credit and improve it.
Let’s say you haven’t used a credit account, such as a credit card or line of credit in a while. As such, you decide to close it down. That must help your credit score since you have less available credit, right? Not necessarily.
Two factors that make up your credit score are your available credit and credit history. Your available credit is how much credit you have at your disposal, while your credit history is how long you’ve had it. By closing a credit account, not only are you lowering your available credit, you may be closing a credit account where you have a longstanding good history of making your payments on time and in full.
I know this seems counter-intuitive. You’d think your credit score would go up for closing credit accounts you’re not using, but not the case. If you regularly monitor your credit score, you’d learn that by doing this you’d lower your credit score.
A good rule of thumb is to only apply for credit that you truly need. We’re bombarded by credit offers these days. It’s hard to go shopping at the mall without being offered a new credit card. But did you know that applying for too many credit accounts within a short timespan can lower your credit score?
The number of credit inquiries is another factor that goes into calculating your credit score. You may think you’re saving yourself some money by signing up for a credit card at a retailer, but if you apply for credit cards too often, it can have a negative impact on your credit score. By limiting the number of credit inquiries, it can go a long way to improve your credit score.
When you don’t regularly monitor your credit score and review your credit report, you can miss inaccuracies. For example, you may have paid off a particular credit card, but if your credit report says otherwise, it could reflect poorly on your credit score. Likewise, it’s possible someone else’s credit account history could appear on your credit report if you have similar names. If this individual has credit issues, it could reflect poorly on your credit score and credit report in Canada.
Hopefully, you realize by now the importance of watching your credit score. By monitoring it, not only are you keeping a watchful eye on it, you can avoid common credit mistakes, too.
If you’re looking for a simple way to monitor your credit score, the Borrowell Credit Coach™ – Canada’s first AI-powered Credit Coach – is a tool worth checking out. When you sign up to get your free credit score with Borrowell, you now get access to Molly, the Credit Coach. Molly is there to help you improve your credit score and overall financial well-being. Molly will let you know the top things you can do to improve your credit score based on your own unique credit profile. For example, Molly will give you a friendly reminder if you’re missed a credit payment or when your credit usage is reaching the high side for the month.
Molly essentially does the heavy lifting when it comes to your credit, so you don’t have to. Molly also keeps track of any changes to your credit profile, such as alerting you of any new inquiries and let you know how your credit ranks against other Canadians.
The best part? The Credit Coach is also completely free!
Borrowell helps people make great decisions about credit. With its free credit score and report monitoring, automated credit coaching tools and AI-driven financial product recommendations, Borrowell empowers consumers to improve their financial well-being and be the hero of their credit.