René Gélinas – Communication and Marketing Director at HCC
Start young, pay your bills on time, be disciplined, and you will be more likely to avoid difficulties in finding financing for your professional needs.
Have you ever had your loan application declined by a bank? Have you lacked negotiating power when settling the interest rate on your loan? If you answered yes to either of these questions, it is possible that your credit score is not as impeccable as you think. Not only will a good profile enable you to finally own a more luxurious car than your neighbor, but will also make it easier for you to borrow money from financial institutions. Arriving late to an interview for a new job position will obviously create a less than desirable first impression. Meeting with a potential lender and presenting a bad credit score are very similar. You will probably make a bad impression and, as a result, the lender will be more reluctant to lend you money. Unfortunately, there is no overnight solution to provide you with an excellent record. However, there are a few good habits that can help you maintain – and even improve – your credit score.
Pay on Time
The best advice, which for some is also the most challenging, undoubtedly is paying your bills on time. While arachnophobia is at the top of the list of the most common fears in everyday life, “late-paying-borrower-phobia” is without a doubt the most common fear in the loan industry. Paying your bills on time will not only spare you from paying very high interest expenses, but is also the best way to build an excellent credit history. Your payment history is the most important aspect of your credit score. Although utility bills (telephone, cable, electricity, etc.) are not included in your file, many companies will not hesitate to notify credit-reporting agencies of any late payments. Of course, the best way to make sure that you are never late is to pay your balance so that it always stands at zero. Although there are some situations that may prevent you from paying your balance in full, it is crucial to make the minimum payment. Remember, the trails left by your late payments will blemish your record for a period of six years; one year less than bankruptcy.
Do Not Exceed Your Credit Limit
Sure, the new Michael Kors handbag and the latest Callaway golf club are appealing items, but if you have reached the limit on your credit cards you should refrain from making such purchases. Contrary to what you may believe, transactions that exceed your limit will not necessarily be declined. Though it may happen from time to time, they will typically be accepted, and you will even be charged over-charge fees that can reach up to $29 for some financial institutions. Additionally, you should make a point to check your bank balance from time to time, since you will not be notified if you exceed your limit. Another valuable piece of advice is to stay away from cash advances. Interest is charged daily and there are even withdrawal fees. High fees, high interest rates and poor ratings will be on your file. This is the catastrophic reality you can expect if you exceed your limit. Need we say more to convince you to never exceed your limit?
Cut down on Credit Card Applications
Although the vast majority of companies have the best intentions, do not think that they offer you a $50 discount just because they like you. These “gifts” are often conditional on applying for their credit card. Not only does this represent an additional risk for you to fall into the never-ending cycle of debt in case of non-payment, but the company will have to make an inquiry in order to check your credit history and solvency. Holding a few credit cards is not harmful in itself, but the way in which you use them is the risk. Our goal is not to dissuade you from applying for new cards, but to make you mindful of the number of credit checks to which you may be subjected. If too many lenders request your information, your file could be negatively affected. Please know, however, that requesting a copy of your credit record from Equifax or TransUnion does not have a negative impact on your score.
Build a Good Credit History
The best way to build a good history is to start when you are young. If your record is long-standing, creditors will be able to evaluate your payment habits more easily. Your active use of various types of credit over a long period will also help to show creditors that you are a good payee. Diversifying your credit, whether as credit cards, margins or mortgages will prove more beneficial than using the same card for 30 years. Try out different tools without going overboard on the number of cards or margins, which could be harmful to your record.
Dissociate Your Personal Credit from Your Company’s Credit
Company owners, remember that your personal credit score is separate from your company’s. For example, when you acquire new equipment for your company, it should be financed through commercial loans or leasing. Try not to resort to your personal credit lines. Strict management of your company’s expenses will enable you to build an excellent reputation that will serve you well when applying for financing. Maintaining adequate working capital will also constitute an argument in your favor when you are negotiating rates. Remember that the solution lies in the healthy management of your expenses and those of your company.
You have certainly already heard these famous words by billionaire investor Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
This quote applies to your personal life as well as to your credit score. It takes many years to build a good credit history, but once you have obtained it, your excellent score will be worth the effort. If you succeed in achieving it, stay on course! Any sudden change in behavior will penalize you and creditors will not be so forgiving! Start young, pay your bills on time, be disciplined, and you will have a better chance in avoiding any difficulties in finding financing for your professional needs.