Do you still have those dreams where you’re in school and you’ve missed or made a huge mistake on an important test.

Sorry to make you anxious, but you’re actually still being tested, possibly without you realizing it. Every time you borrow money, use your credit card or pay a bill, you’re being evaluated by Canada’s financial system.

Your grade is your credit score.

And every time you apply for a loan or a credit card, the financial institution involved can look up that credit score and use the information to decide whether to loan you money or not, and at what interest rate.

Some experts are saying the credit score was not originally intended to play such a huge role in loans but was intended to just provide one piece of information about a borrower.

Behind the numbers

So, what goes into determining your credit score?

• Your bill payment history, noting when you are late for things like utility and cell phone bills, and credit card bills.
• Any bills that have gone into collection.
• The amount of credit you’re using — your debt load.
• How much credit you have available.
• How much credit activity you’re been using lately.
• How long you’ve had your accounts.

The players

Canada’s two major credit-reporting agencies are Equifax Canada and TransUnion Canada. These organizations both collect credit information and distribute it to banks and lenders, but also to consumers.

Using your personal information, you can quickly access your credit score online from these companies, paying a minimal fee (about $25). Or, you can have your report mailed to you for free.

What the numbers mean

The Canadian agencies use a numerical system to give your credit score. Basically, they rate you with a number between 300 and 900 (or thereabouts), the higher number indicating a lower lending risk.

So, getting a score of 700 puts you in an average range, meaning you’re likely to get loans at decent rates.

Why check?

Most people look up their credit score when they’re about to apply for an important loan like a mortgage and want to know how it’ll go. Seeing your score can help you better understand what potential lenders are telling you or are about to tell you. It also allows you to see your information and possibly correct any problems or work towards improving your credit score.

Also, credit experts suggest you check your score to ensure there are no errors and that there’s been no fraud on your account. Is this paranoid? Maybe. But if you’ve lost your wallet recently or you have suspicions, checking your score will for certain reveal to you if anyone is using your personal information to borrow money.

Will you check?

Some of us dread hearing the truth about ourselves, and the truth about our credit past is no exception. If you know all is well, perhaps checking won’t be a big deal. Maybe you’ve had rough times and don’t want to know that others remember.

Still, it’s good to know this information is available to you when you need it. Check when you’re really ready to see how you did on this one, important test.

It’s a classic hectic January shopping moment: you’re at the checkout, about to drop a pile on some last-minute deals, and the cashier asks if you’d like to sign up for the store’s credit card.

The application process won’t take but a minute and better still you can get an even better deal on your purchase. Maybe a percentage discount, or a don’t-pay-for-x-number of days thing.

Why not? Because there are some serious problems with store credit cards. They offer a sneaky way to reduce your credit rating, get yourself into debt and entice you to shop more.

Here a run down of the downsides:

High interest rates

These cards have rates in the 25% to 30% range. Your regular credit card should be lower than that! So if you leave a balance on your purchases it could take months or even years to pay it off, as that interest keeps building when you have a balance.

Your credit score

The more credit you have to your name, the higher your debt load, and the worse your credit score. This is particularly a problem if you get pulled into signing up for several in-store cards with high limits. This can compromise your chances of getting loans, even if your balance is at zero.

Managing your debt

When you have numerous cards — plus a car loan and a mortgage, for instance — your debt is all over the place and is much harder to manage. You may focus your efforts on paying down your main card and think all is well. Then, bam! You get that store credit card bill in the mail and there’s money owed there too.

Buying more

When you have a store card, you’re tempted to dash out to that store more often and make use of the promotions, points and bonuses offered through your card. Those promotions are great: but there’s a big chance they encourage you to shop more, get stuff you don’t need, and even purchase items at higher prices than you would pay elsewhere.

Initial deals

When you sign up for a store card, you often get 10% or 20% off your initial purchase. That’s great. But what if you’re just making a small purchase that day and head back to buy a couch or all your kids’ spring clothes a few weeks later? You’ll likely throw away that great initial deal if you sign on for a card on the spur of the moment.

Making store credit cards work for you

So, how to make the most out of those store credit cards?

• Only sign on for a card for a company you truly use. Gas cards, home reno store cards if you are doing a lot of fixing up, come to mind. Get one of these cards, two max, and leave it at that.
• Know the points and rewards systems on the few cards you have and truly take advantage of them. If there’s a cardholders discount day, hold off on purchases until that day. Keep track of and redeem your points.
• Read your bill statements every month and make sure your credit limit is low, your interest rate is being fairy charged and you’re not falling prey to any find print you missed reading when you got the card.
• Fully pay off these cards each and every month. If you can’t do that, get rid of the card or consolidate your debt with a loan or line of credit.

Store credit cards are like any other form of credit. They can be great by allowing you access to the stuff you want and need, often at a discount. But they have their perils — so buyers beware.

Way back when I was in university, I once flew out to Vancouver to meet some friends who were working there on a summer job. Needing a car to get around, I popped by the nearest rental agency. That’s when I found out I would need a credit card or $300 for a security deposit. Lacking the former, I had to deplete a good chunk of my holiday savings for the deposit, teaching me an early lesson in the value of having good credit.

As soon as I got back home I signed up for the first student credit card I could get my hands on, and have worked ever since to build – and maintain – my credit score. Here are a few things I’ve learned along the way.

Start Early

Obviously, you’re not going to get your six-year-old a credit card. And even a teen who has worked steady summer jobs will have a hard time qualifying for a card without a parent co-signing. (Prepaid credit cards won’t help your credit history.) But once you get to college or university, the banks will be clambering to sign you up relatively hassle-free in anticipation of all those school-related expenses and extra-curricular spending, not to mention your potential future earnings.

So start there. But don’t stop there. Once you graduate and start earning a steady income, shop around for other cards to take advantage of lower interest rates or rewards like air miles and cash-back incentives. Get a car loan and pay it off. Set up a line of credit so you have access to emergency funds. Then take the big step and apply for a mortgage….

Pay Your Bills On Time, Always

The best way to blow your credit rating is to miss bill payments. Your credit report (see Check Please below) will list any payments that were 30, 60, or 90 days late. Anything more than the rare accidentally forgotten payment and your report will quickly fill with the proverbial red flags that make you a bad credit risk. If money happens to be particularly tight one month, at least make all your minimum payments. And rather than pay the 20 to 30 percent interest rate credit card companies charge, use your line of credit to pay off those bills.

You Can Have Too Much of a Good Thing

When it comes time to negotiate a mortgage, having too many credit cards can actually backfire, even if they’re all paid up in full. The problem is that the financial institutions will view your various credit limits as liabilities when calculating how much they’re willing to lend you. The way they see it, if you have a Visa with a $10,000 credit limit, a $5,000 MasterCard and a handful of gas station and retail cards with $500 or $1,000 limits, then you could end up owing other companies twenty grand.

A mortgage broker can advise you on all the steps, like closing superfluous accounts, you should take before submitting your loan application.

Check Please

Everyone makes mistakes. Unfortunately, credit agencies are somewhat notorious for making lots of them, potentially impacting your ability to get credit when you need it. The two ratings agencies in Canada, Equifax and TransUnion, are both required to provide consumers with a free copy of their report by mail. But that can take a few weeks, and requires you to send confidential info (like your social insurance number) through the post. The easier option is to pay the $15 fee online and get your report instantly. However you get it, read through the report carefully and contact the credit reporting company immediately if you notice any errors.

You always think of fraud as something that happens to someone else and not you. But that’s not true. Canadians lost $53.8 million from mass-marketing fraud in 2010.

Much of that money is lost when a fraudster gets hold of your credit card information, debit card PIN or gets access to your bank account.

With the holiday season right around the corner, these plastic cards will be out on show more often then at other times during the year.  Here’s what you need to know.

How do they do it?

With the help of technology, these guys use various tricks to get a hold of your private information, and then spend your money.

Fraudsters can be located in your own home town, or halfway around the world. Some are seasoned scam artists who do this for a living. Others are folks who want to make a quick buck and often succeed even though they barely know what they’re doing. All a scam artist needs today is a computer and some twisted ideas to exploit weakness.

Familiar scams include advance-free fraud, where an email from a foreign country asks you to give a little money to pay for, say, lawyer fees to release a huge sum of money, which they claim will be shared. You never see your money again, and your bank account can get cleaned out.

Also popular these days are emails that tell you your computer has a virus, and you need to click on a link or call a 1-800 number to fix the problem. You give up some personal information, and it’s used to purchase things on your credit card or empty your bank account.

The scams change constantly as fraudsters come up with new ideas to stay ahead of the law and consumer awareness. So, no point in keeping track. Better instead to use some safe practices that will hold you in good standing.

Safe Practices

• Only do online transactions with a secured, verified site. Spend a moment on the site checking around for things like the Better Business Bureau logo and other verification seals. Click on these links to be sure they work. If you’re on a site for an online-only retailer you’ve never heard of before, do a quick search of the site’s name and make sure no one on the Net has reported any scams from this company.

• Never follow a link. Be it from an email or another site, always retype the url of your bank, PayPal or other site to be sure you’re going to the real site. Fraudsters often create fake sites that look very real.

• Read carefully. Spelling mistakes and other quirky details often give away a fake site or fraudulent email.

• Never give away your private information (i.e. social insurance number, bank account details, full address, etc). Only give out this information to someone you have called personally, and that organization is someone you trust like your bank or a familiar retailer. Always question why they need the information they’re asking for as well.

• Deal with a stolen wallet. Along with cancelling credit cards and getting new pins for debit cards after a theft, don’t forget the other things in your wallet. A Social Insurance Number can be used to get a loan, a video store membership card can be used to rack up movie rentals you’ll have to pay for. Generally speaking, keep your wallet light and leave things like birth certificates at home, where they’re safer.

• Report all fraud. Tell your bank or credit card company right away when something seems amiss: you may not have to pay for those iffy transactions. As well, report what has happened to Canadian credit bureaus TransUnion and Equifax, as they can place a fraud alert on your file. That will stop any fraudster who tries to increase your credit limits, get new cards or do other things to keep taking money from you.

Sorry, but fraud can happen to you. Being constantly wary in public and online, particularly during the busy holiday season, will help you avoid most ripoffs and keep your credit card and bank account safe from crime.

When you own your own business, you still might want to do things like own your own home. Imagine that! Or,  purchase a location for your business instead of renting. But having an unstable income makes property ownership a lot more complicated.

Here we take a look at the major issues facing business owners when it comes to getting a mortgage and ways you can get around them.

Issue number one: Landing a Mortgage

Getting a lender interested in granting you a mortgage can be a challenge when you’re self employed. That’s mainly because lenders look to pay stubs to confirm your income. As a self employed person myself, I have no pay stubs!

Instead, companies look to your Notice of Assessment from Revenue Canada. These often come in the summer, months after you’ve filed your previous year’s taxes. Bottom line: if you’re behind on your taxes, you haven’t been self employed for three years, or you dramatically underpay yourself to keep the business afloat, or you have many business expenses that dramatically lower your taxable income, this could be a problem.

Many entrepreneurs, as a result, need to work with a mortgage broker who can secure them a mortgage as a higher risk borrower, which comes with corresponding higher interest rates.

Solution

• Check out Melanie’s post from Monday for some great ideas on how to lower your risk to become a more ‘desirable’ mortgage customer.
• Get your taxes in order and collect your Notices of Assessment for 2-3 years back.

Issue number two: Getting Insurance

When I bought my first home more than a decade ago, we didn’t even bother applying for mortgage insurance — as our down payment was less than 20 per cent of the house’s value — through the Canadian Mortgage and Housing Corporation (CMHC). Instead, my partner and I had to get a personal loan with a family member to make up that down payment difference!

Times have changed. CMHC introduced a self employment insurance program in 2007. You still need to have two years of proven income, and the insurance rate is higher than that paid by traditionally employed people. (In the end, it might be cheaper to get that family loan!) Not everyone qualifies for this, but it helps if you have a good credit rating and can demonstrate years of solid income.

Solution

• Deal with outstanding credit card and other debt and make sure your credit rating is in good shape.
• Check out these ideas on how to improve your credit score.

Issue number three: What Mortgage is Right?

The perennial debate between fixed and variable rate mortgages is even more pressing for entrepreneurs.

Over time, and certainly in the short term, variable rates will save you money. Having a low rate particularly early on in a mortgage, when you owe the most, will save you big bucks.

However, when rates rise, so do your payments. If you’re tight for cash and operating on a precise budget, this could throw things way off. And since rates are so very low right now, we know that eventually they will rise. Depending on the world economic climate, that could be in just a few months, or it could take years for rates to climb a notable amount.

Meanwhile, when you have a fixed rate mortgage, you’re often paying a higher interest rate.  But that higher rate acts like an insurance policy: when you sign on for a set term, say five years, you know you’re not going to have to pay more. Many are saying at these low rates, locking in now is a great idea. This is attractive for entrepreneurs who want to know how much their expenses are: no surprises.

Solution

• Crunch some numbers and see how much risk you can tolerate with regards to a variable rate mortgage.
• If you do consider variable, choose a higher monthly payment so when the rates do inevitably rise, your payments won’t change (plus you’ll have paid down extra on your principle in the meantime).

Personally, the timing on this piece couldn’t have been more perfect. On Friday, my partner was in a car accident. His vehicle was hit head-on by an oncoming car in a busy intersection. The accident wasn’t his fault and he wasn’t hurt, but his vehicle was written off. As a result, we spent the weekend exploring new vehicle options. Should we lease or buy new? In the end, we decided to buy new. Here’s what we learned this weekend.

8 Steps to Buying a New Car

1. Talk about your personal and family needs. Your car should suit your lifestyle, as well as your driving schedule. Do you drive a lot? Do you need extra storage space? Come up with a list of features that you feel are must-haves. This will make car shopping a lot easier. If more than one of you will be driving the vehicle, discussing your needs beforehand will keep you both on the same page.
2. Check consumer reports. Once you’ve decided on the type of vehicle you want, take a look at online consumer reports. Cars are rated on features such as how well they handle, fuel economy, safety features and comfort.
3. Determine your budget. You need to decide whether or not you will need financing to purchase your new vehicle – most people need financial assistance of some sort. You will also need to consider how much you can apply to the sticker price as a down payment. Keep in mind, the larger the down payment the lower your monthly payment. Contact your financial institution about financing. Your interest rate will depend solely on your credit score. If your credit score is good, your interest rate will be lower. If your score is bad, your interest rate will be higher. Shop around to find the best rate. If you’re fairly confident about your credit score, you can wait until the signing of the contract to contact your financial institution.
4. Visit dealerships. Now that you know what you are looking for and you’ve done the research and determined your budget, you’re ready to go shopping. Compare prices carefully from dealership to dealership. Ask if the ticket price is the best they can do. Often, dealerships have some leeway on the price and will lower it if they think you’re serious about purchasing the vehicle.
5. Take the car for a test drive. You should always test drive potential cars. You want to make sure that it handles well and responds to your driving style.
6. Signing the contract. At this point, you will be required to put a down payment on the vehicle. Again, the more money you put down on your purchase, the lower your monthly payments will be. Read the contract carefully before you sign it. Make sure that the contract includes a “buyer’s right to cancel” – a provision which is not required by law. This will allow you to return the vehicle should you change your mind for some reason.
7. Get auto insurance. According to Federal law, all car owners must have car insurance. You can get car insurance from most financial institutions, as well as insurance companies. Again, shop around for the best rate. Car insurance rates can vary wildly. Do the legwork now and save later.
8. Store car information somewhere safe. This isn’t really a part of the process, but it is important. Should you want to sell your vehicle in the future, you will need this information. Store receipts, contracts and your car’s VIN number (vehicle ID number) somewhere safe.

A Note on Leasing

If you feel that you aren’t ready for the financial responsibility of buying a car, leasing may be a better option for you. There are some restrictions with leasing, including how much you can drive and imposed maintenance costs. In Canada, there are two types of leases you can purchase. An operating lease will allow you to purchase the vehicle at the end of the term, but it can be a very expensive option. Since the term is usually longer, a capital lease will allow you to purchase the vehicle at the end of the term for a lesser amount.

Again, interest rates on leases will vary and are dependent on your credit score. Shop around for the best rate. Make sure to read the contract carefully before you hand over a down payment. It could contain stipulations and exceptions that don’t work for you. 

Melanie
Writer for Rate Supermarket.ca

Somebody forgot to tell the big banks that the latest global recession was the result of a credit crisis, because they keep offering it up like candy. Not a week goes by that I don’t receive a couple letters in the mail enticing me to sign up for a new credit card – “You’re already approved” – or get asked by a bored salesperson with a clipboard if I’d like to have the store’s branded credit card. But why wouldn’t they? They charge retailers a percentage on each transaction, and they get to charge cardholders exorbitant interest rates on any balance they carry. Here are some ways to avoid padding the bank’s bottom line with your money.

Don’t carry a balance
The number one rule to controlling credit card debt is to not carry credit card debt. If you under-pay your bill by even one cent, the interest is backdated to the last bill on everything you’ve purchased since then, even if you’ve technically paid most of the items off with a partial payment.

For times when you splurge on a big-ticket item, or just fall behind on cash flow when the bill is due, you should also have a line of credit (LOC) at your disposal. Use the LOC to pay off your bill in full, and then pay the LOC off as soon as you can. You’ll save yourself up to 25 percent or more in interest.

Fee or free?
I have two credit cards in my wallet: a no-fee MasterCard that gets me free groceries, and a joint Visa with my wife that earns air miles and costs us $150 a year in annual fees.  I was initially reluctant to pay for something (the Visa card) that I was already getting for free (the MasterCard). Then I remembered that plane tickets are a much better perk than condiments, lettuce, and diapers.

Unless you’re shopping on the black market, there’s no incentive for using cash. I use my credit cards to pay for almost everything I buy – gas, groceries, magazines, you name it – and the points quickly add up. For us, it adds up. But for a single person with modest monthly expenses, the annual fee might be wasted money.

Another option is to sign up for a cash-back card that pays you a small percentage (usually 1 or 2 percent) of your total credit card purchases. Then you can use this return to pay for a holiday – or restock the pantry, whichever is more urgently required.

Pay on time
Some people who are manic about collecting points, but leery of not having enough money available to pay off the balance when it’s due, advocate transferring funds to your credit card immediately after each purchase. That’s fine, but you’re missing out on one of the understated perks of properly managing credit cards: You can use them as an interest-free loan for a short period of time.

Rate ripoff
Don’t get sucked in (too long anyway) by the steeply discounted “introductory” rates that some companies offer. They typically only do so for a few weeks or months before jumping to much higher rates. While this could be a good short-term option for reducing your debt levels – particularly if they offer a cash-back bonus for transferring a balance – you’ll want to be able to pay off the balance before the rate does climb.

Likewise, store credit is relatively easy to get, but is typically saddled with interest rates around 30 percent. If you’re not going to pay off the balance in full, this is not the type of credit card for you.

In over your head?
If you do find yourself carrying a balance month after month, and can’t seem to figure out how to get out of the growing debt spiral on your own, it might be time to book an appointment with a credit counselor. They can help you consolidate your various debts into one, lower-cost bundle, and even negotiate some grace periods and other breaks from the institutions you’re indebted to.

Allan
Writer for RateSupermarket.ca

There are several numbers that will be assigned to you throughout your life as a form of identification or to map you against others on a scale of ‘good’ and ‘bad’. As soon as you’re born you’ll get a number on our birth certificate, then there’s the passport number, drivers license, social insurance and health card. In university there’s your GPA; when you join the workforce you typically get an employee ID number. But of all these numbers, there’s one that looms in the background and only rears its head when it’s got something bad to say. Your credit score.

This little number has a significant amount of influence over us when it comes to matters of personal finance. It’s what will determine if you get approved for a credit card or not, if you qualify for a line of credit, or if you can get a mortgage or any other type of loan.

Your credit score is a number, on a scale of 300 to 900, that will tell lenders just how likely you are to repay a loan. The higher the number the better the chances are that you won’t default on the loan. Lenders like applicants with high credit scores, a good score is 760 or higher.

This number is derived from your credit history, so throughout your life, if you ever forgot to pay the minimum amount owing on your Visa or if you’ve racked up several store cards over the years, you can be sure the Credit Gods (also referred as the Credit Bureau) were watching and keeping a tally.

Your credit score can be affected by:
• The length of your credit history
• Bill and loan payment history
• Current outstanding debt
• Credit used versus available credit
• Severity of any credit defaults

Below are a few tips on how to make sure your credit score number is where you want it to be.

Credit Score Top Tips

1. Know your number. First things first, you need to know what your credit score is and if it’s not pretty, what’s causing the problem. You can get a free report from Equifax.ca or Transunion.ca that will include your credit history and current credit outstanding. For a small fee, they will include your credit score as well.

Your credit score can determine what mortgage rate you get when you’re looking for a mortgage as lenders typically reservetheir best deals for those with good credit. So it’s helpful to know your score before you start your mortgage shopping.

2. Check your number regularly. You should check your credit score on a yearly basis. That way you can flag up any mistakes or credit fraud before it goes on for too long. Their are credit monitoring services available for around $25/month that help keep an eye on things for you. The Credit Gods are not perfect, so if a mistake happens it’s your responsibility to fix it.

3. Pay before it’s due. Always pay the balance or the interest owing a few days before it is due. That way, if the due date falls on a Sunday or holiday, you don’t have to worry about the payment clearing late and this appearing on your credit history.

4. Keep your debt in check. A good rule of thumb is to keep your debt levels below 50% of the amount of credit available. If you’re over this ratio, consider taking out another card. And make sure you never go over your credit limit (the Credit Gods really don’t like that).

5. Limit your number of credit score requests. If you end up applying for a few different credit cards in a short period of time (the sign-up discounts offered on store cards can be enticing), or if you’re searching for a mortgage and trying to get pre-approved by a few different lenders, the Credit Gods will start to think that you’re in financial trouble and your number is likely to drop.

6. Time can heal all scores. If you’re starting off with a low number, just remember that as time goes on (if you pay your bills on time and use a wise amount of debt), the Credit Gods will eventually forgive you and your good credit behavior will be rewarded with a higher number. Be prepared that it just might take a few years.

Credit scores in Canada measure a borrowers’ credit risk based on a valuation of their financial history including details on credit cards, loans, mortgages, credit and payment history.

A favorable credit score is an important factor in applying and securing the mortgage of your choice. It also makes it easier for an individual to get credit cards, and loans on favorable terms, sometimes even with instant approvals. The higher your score, the lower the interest rate! The difference between a good and bad score can increase the cost of a loan by 3% or more. It is wise to start working towards a high credit score earlier on so you can reap the benefits of lower mortgage rates later on.

In Canada, credit scores are generated by three private agencies – Equifax, Trans Union and Experian. Though all 3 bureaus offer FICO (Fair Isaac Credit Organization) credit scores using the formula developed by Fair and Isaac, each has given it a unique name. Equifax calls it the Beacon Credit Score, Trans Union calls it FICO score and Experian calls it the Fair, Isaac Risk Model.

Equifax is the most widely used credit score and totals can range from 300 to 900. The break-up is as follows:

It is important to understand that different lenders set their own policies and tolerance for risk when making credit decisions, so there is no single “cutoff score” used by all lenders.

Equifax published the national average FICO score range which you can see below.

You can also see the corresponding delinquency rates based on these scores:

It’s easy to see why lenders use these to evaluate prospective borrowers!

Factors that affect your credit score

1. You’ve been looking for credit in the past year

If you’ve been recently been seeking credit, this is evident on your credit file based on the number of inquiries in the past 12 months. Research shows that consumers who are seeking new credit accounts are riskier than consumers who are not seeking credit.

There are both credit and non-credit inquiries on the report and the score only considers those related to credit applications. Inquiries such as your bank reviewing your account or you requesting a copy of your own report are not considered.

The scores can identify “rate shopping” so that one credit search leading to multiple inquiries being reported is usually only counted as a single inquiry. It’s been reported that for this to occur the person making the inquiry must use Equifax’s “mortgage code” when requesting your credit score (ie. “FM” is in your Equifax member number).

For most consumers, a few inquiries on your credit file has a limited impact on FICO scores.

Do inquiries drop my credit score?

A common misperception is that every single inquiry will drop your score a certain number of points. The impact of inquiries on your score will vary depending on your overall credit profile, and it can drop anywhere from 5 to 20 points on the first mortgage inquiry, but this is different for every case.

Inquiries will usually have a larger impact on the score for consumers with limited credit history and on consumers with previous late payments. The most prudent action to raise your score over time is to apply for credit only when you need it.

2. You have a short credit history

Age of your credit on revolving or non-revolving accounts also affects your credit score. Revolving accounts are credit cards such as Visa, MasterCard, or retail store card that allow you to make a minimum monthly payment and “revolve” the remainder of their balance over to the next month.
Non-revolving accounts include cards such as American Express and Diners Club and must be paid off in full each month.

Research shows that consumers with longer credit histories have better repayment risk than those with shorter credit histories. Also, consumers who frequently open new accounts have greater repayment risk than those who do not.

If you can maintain low balances and make sure your payments are on time, your score should improve as your revolving credit history ages.

3. Non-mortgage debt is too high

Consumers with larger credit amounts have a greater future repayment risk than those who owe less, resulting in the score measuring how much non-mortgage related debt you have.

The total outstanding balance on your last credit card statement is generally the amount that will show in your credit bureau report. Even if you pay these off in full each month, your credit bureau report may show the last billing statement balance.

Paying off your debts and maintaining low balances will help to improve your credit score. Consolidating or moving your debt into one account will usually not, however, raise your score, since the same amount is still owed.

Bankruptcy on the credit report is a borrower’s worst nightmare, as it stays on record for almost 10 years and reduces your score by 200 points or more.

4. Not paying off your loans

If you have installment loans and owe money on them, this does not mean you are a high-risk borrower. Paying down these installment loans is very positive as it shows that you are willing and able to manage and repay debt, and a successful repayment history is good for your credit rating.

One measurement is to compare outstanding loan balances against the original loan amounts. If you took out a $1,000 line of credit 1 year ago and still owe $925, this shows that you may be having trouble paying off the debt. Generally, the closer the loans are to being fully paid off, the better the score. This metric has limited influence on the FICO score.

Paying off loans on a timely basis reflects well on your credit score, but if you really want to improve it, try to pay the loans, (especially non-mortgage debt) as quickly possible.

Credit scores are an important part of the mortgage application and house buying process, and you do have some control over the results. Regular checks to keep on top of your credit history will help prevent any nasty surprises when you buy your next property and you’ll be on the ball when your bank manager says, “Now about your Beacon….”.