What’s in your wallet can dramatically help or hinder your chances of landing your dream home. That’s not a metaphor for your income or savings – the credit card you carry around every day has a direct impact on your credit score, and in turn, your property hunt.
The more mistakes you make with your credit card, the lower your credit score will be and the less reliable you’ll be seen at paying down debts. That could mean not being able to secure the best mortgage rate or a landlord’s trust in your ability to pay rent on time.
With that in mind, here are the credit card missteps you’ll want to avoid to help ensure that your credit score is above the 650 mark and a prospective new home doesn’t slip through your fingers.
Missing a Payment
Anytime you use a credit card to make a purchase, you are using borrowed money and accruing a balance that must be paid back by the date indicated on your monthly statement. If you do not pay off your credit card statement on time, it can leave a mark as a missed or overdue charge on your payment history.
Payment history is one of the most important determinants of your credit score and accounts for upwards of 35% of your total score.
Aside from the negative impacts to your credit score, missing a payment will also lead to interest charges on your balance for each day that you’re late. Most credit cards have an annual interest rate of 19.99%. However, a number of low interest credit cards charge rates in the single digits.
To ensure you don’t miss your credit card payments, set up an email, calendar or app notification of when your statement is due.
Not Using Your Credit Card
If you have a credit card but don’t use it for extended periods of time, your bank or card issuer may deem your account inactive and have it closed.
The closure of a credit card account can negatively impact your credit score, particularly if the credit card that is closed was your first or only one. One way to avoid having your credit card marked as being inactive is to use it to make purchases at least occasionally. Additionally, it’s recommended that you reach out to your bank or card issuer to inquire about their account closure policy, as terms tend to vary from one institution to the other and you might be able to avoid a closure by simply asking.
Maxing Out Your Credit Card
There are numerous benefits to using a credit card for the majority of your purchases, not the least of which includes the ability to earn rewards in the case of the best cash back or travel credit cards. With that being said, using your credit card to the extent that you’re constantly reaching the upper limits of your credit limit can be detrimental to your credit score.
A maxed-out credit card can signal to some lenders that you are overleveraged in terms of your debts – even if you pay off credit card statement in full and on time. In general, it’s recommended that you access up to maximum of 30% of your total credit limit (across all your credit cards and loans) at any one time.
If you’re reliably paying off your statements on time but continue to come close to maxing out your card, you can ask for a credit limit increase from your bank or card issuer. You may also want to wait till after you get your mortgage or credit checked by a potential new landlord before making multiple big-ticket purchases on your card. That way you can avoid accruing a balance that’s over 30% of your credit limit just as your credit score is being assessed.
Closing Your Oldest Credit Card
If the first credit card you opened has gone unused for a while and you’ve upgraded to some better plastic, the thought of cancelling it might have crossed your mind. After all, what purpose can your oldest card serve just sitting in your wallet? Turns out, quite an important one.
Your first credit card marks a key point in your credit history, and if you close it, you risk shortening the length of your credit history and potentially decreasing your credit score over the long run. Moreover, by cancelling a credit card, you will decrease the total amount of credit you have access to, which can also serve to decrease your score.
Therefore, it can be a smart move to not cancel your first credit card or any cards that have no annual fees for that matter. It’s also suggested you charge some purchases on all your credit cards at least occasionally to ensure they remain active.
Not Having a Credit Card in the First Place
If you don’t currently have a credit card, you’re missing out on one of the most straightforward ways of building good credit.
By using a credit card responsibly and paying off your balance in full every month, you’re signalling to lenders that you can be trusted when it comes to borrowing money – helping you develop a longer and more positive payment history. Without a credit card, lenders may have less information to work off of when building your financial history and profile.
Additionally, having a credit card can help diversify the types of debts tied to your credit score. Most lenders like to see a track record of on-time payments being made across multiple types of debt, so if you don’t currently a piece of plastic, getting one for the first time can help improve your credit mix and bump up your score.
In addition to a financial tool for building good credit, signing up for one of the best credit cards in Canada can also help you unlock access to a number of benefits, such as the ability to earn rewards on every dollar you spend (that can help you recoup some savings when shopping for new furniture) as well as side perks such as rental car coverage (which can come in handy when renting a van for your move).
