Thanks for tuning in to today's show. Originally, I was gonna have Mike, our commercial manager on to discuss investing in commercial properties, but he had a bit of a family emergency. So I thought, you know what? One of the new episodes I was gonna do was how to build or improve your credit score. So this, it doesn't matter if you're an investor, a regular homeowner, it does not matter.
Scott Dillingham:You need to know how to improve your credit score. So a little story about me and how I did this and improve my score myself. When I first went to buy my very first house, I went for a mortgage preapproval, and I had a couple credit cards at the time, and I had a job, and I thought it would be no problem. So I went, I did my preapproval, and they said my credit score was too low. They couldn't help me out.
Scott Dillingham:I'm like, but why? What's on there? I know I pay my bills. There's nothing on there that like, it's I have no late payments. Why am I declined?
Scott Dillingham:And they said I was declined because I had a Best Buy card that was past due and Best Buy closed that account. And I never had a Best Buy card. So I'm like, what the heck is this? I I got my Equifax report, and I'll dive into that in a minute on how to do that. And I saw it on there.
Scott Dillingham:I saw that it was right there. And so I fill out this form to dispute the entry, and Equifax took it off right away. So they do an investigation whenever you fill out a dispute form. They investigate the credit item, and they determine if it actually is yours or not. So in my case, it wasn't.
Scott Dillingham:So they removed it, and that instantly brought my score up. So I went back to do my preapproval. I got the mortgage. We're good to go. So that happens to a lot of our clients that come see us for mortgages.
Scott Dillingham:There's items on their credit that shouldn't be there like a car loan that maybe they've traded in, but that car loan payments, they're still showing up there. Now that's not hurting their score, but because that credit item is still on the credit report, it's showing an additional liability, which means that erodes your purchasing power because it's showing as a debt. And again, this doesn't matter if it's an owner occupied home or a rental. This all applies. I think step one to improving or building your credit score is to review your credit report.
Scott Dillingham:Like I said, with my story, I had no idea I had something on there that was not me. And by reviewing my credit report and going through the application, I discovered that it was there. But instead of applying for a mortgage and then finding out that it doesn't work or any other type of debt, I think it's best to just get your credit report yourself. It's free with Equifax. You can get one free credit check or credit report per year, or they do have a monthly payment thing that you can do and you can get regular credit updates.
Scott Dillingham:That's up to you. But again, if there's ever anything on the report that you see that's not there, you can dispute it. So to dispute it, again, it's you go to their website, equifax.ca. You hit contact us. Under there is a dispute form that you can print, fill out, you can fax it, or mail it in.
Scott Dillingham:And by doing that, as long as the debt is not yours, they will eliminate it from your application, your liabilities, and any negative score attached to that also goes away. So you can get an instant boost on your credit score. Another thing that people don't always realize is your credit score, it's not only late payments or if you pay your bills on time, that's not the only measure that the credit reporting agencies look at. And look at a couple things. So one is your payment history.
Scott Dillingham:So right, that is whether you've paid late or not late. Another one is your credit usage. So that means how much credit are you using compared to your total limits and what's available to you. How much is utilized? The age of how long your accounts have been opened also has an impact.
Scott Dillingham:The credit mix, so whether it's just credit cards or is it credit cards, loan, mortgage rate, is it a a diverse credit bureau, or is it just all with credit cards or only your cell phone bill type deal and new credit inquiries. So are you checking your credit often by applying for different things? So they look at all of this. Another thing to keep in mind with your credit report is it spans over seven years. So if you had late payments a couple years ago and now you're good, it will still show up that you had late payments a couple years ago.
Scott Dillingham:So some people think it doesn't matter, but no, it does matter and it spans over a seven year period. So you wanna make sure you're good. Now, obviously, payment history, that's quite easy. Pay your bills on time. Don't be late.
Scott Dillingham:That will give you a good payment history. Credit usage. This one is it's pretty cool. Like, you can there's some tweaks here, and I'll share the tweaks in part two on how to optimize your credit usage to help boost your score. But ultimately, every credit item you have is recorded differently under usage.
Scott Dillingham:So if it's a car loan or a mortgage, that won't really have an impact on credit usage or utilization because it's a loan. It's an installment. So you've got the lending, that was it. Where they really measure your usage is on your credit cards, lines of credits. They'll look at your limits in that case versus your balance and that's where they get that ratio.
Scott Dillingham:So again, regular loans and mortgages, they don't count as part of your credit usage. The age of the credit accounts, so I have some clients that say, I didn't use the card so I canceled it. Never do that. Just lock it up in a safe. Put it somewhere where you're not gonna use it because even though that card you might have in your wallet or purse and you're never using it, the fact that it's staying open and there helps boost your credit.
Scott Dillingham:So again, never close an open credit account that you have because it can hurt your credit. Just lock it up, don't use it, put it somewhere safe, and then you're good to go. So credit mix again, that's very general. They're looking for do you have a diverse amount of credit? So mortgages, loans, land of credit cards, cell phones.
Scott Dillingham:They wanna see you have credit in different areas because some people, they could be good with their credit card, but they're always late on their cell phone bill. So they're gonna see that and that's why they like you to have multiple things so they could tell what your habits are. Okay? And then obviously, new credit inquiries again, that's people checking your credit. So that is one of the major benefits of going to a mortgage brokerage for your mortgage as opposed to shopping independently for the banks or just independent lenders.
Scott Dillingham:Doesn't have to be a bank. But what happens is if you take your application and you apply it lender one, and you don't like the result or you want something better or better rate or better service and you go to lender two, they're checking your credit and if something doesn't go good there and you wanted another opinion, you go to lender three, that's three credit checks. Where you work with a mortgage broker or mortgage agent, they will check your credit and scan and filter through all the lenders who meet your criteria so then you can know right away who is a good lender to work with, and that's all done on the one credit check instead of multiples. So keep that in mind as well. Going for car loans dealership to see who has the best financing, that's not a smart idea.
Scott Dillingham:Right? It'd be a smarter plan to find the car that you want and then apply at that dealership providing they have access to many lenders. So it doesn't matter if it's a mortgage, car, whatever. Now as far as credit utilization is concerned, the key for credit utilization is you wanna be under 30% of your total limit. So if you have a limit of $10,000, you wanna be under $3,000 as money owing to your credit score.
Scott Dillingham:Now your score will still improve if you're above 30%, but it will improve faster if you're under. However, once you get over 70% of the utilization of your credit limits, that's when your score can actually go down. I've seen clients that never missed a payment, but their utilization was high. So every month their score was going down. So you don't wanna be overutilized.
Scott Dillingham:So when we come back, I'll dive into my score or not my score, but my secret on how to improve your credit utilization without doing a single thing and paying money and how to improve that, and then we'll dive into the other ways to improve your credit. We'll come back. Okay. I wanna dive right into my trick on the utilization. I love this.
Scott Dillingham:It's so cool, and anybody could do this. Now it does have to do this. You will have a credit check, like a credit check does need to happen. But if you look at the grand scheme of things, your credit usage or utilization accounts for roughly 30% of your credit score, or credit checks only account for about 10% of your credit score. So it's actually better to get a credit check if it lowers your credit utilization.
Scott Dillingham:And what I mean by this is any credit cards that you owe money on or lines of credit where your utilization is high, a quick trick to get an instant boost to your credit score and to lower your utilization is to call up the credit card companies and say, I've been paying my bills on time. Everything's good. I've been a customer for x amount of years or however long it is, and I would like you to increase my credit card. And they're gonna say, okay, we can increase your limit, but you need to authorize us for a credit check. Oh, say yes, move forward.
Scott Dillingham:Then if your credit score sorry, if your credit limit, if they can increase it, instantly, that lowers your utilization. So it's a great trick to lower your utilization. Now if they say no, and they don't move forward, I wouldn't call another credit card company and do it again and try it again and again. Then because you're gonna have all those credit hits and it's not gonna be good. So if they say no, stop right there.
Scott Dillingham:Okay? That means you haven't built up enough credit or tenure with them or your credit score overall is not strong enough and they don't wanna increase it. So if you get that first no, don't keep trying. Because a lot of times Visa and Mastercard, a lot of times they make the rules, and the credit card agencies just follow it. If you've got Visa with one bank and you go to Visa for a second bank, it's gonna be pretty similar results.
Scott Dillingham:Okay? If they say no to you, don't move forward. But if they say yes, bump it up. Don't spend it though, because then you're back at square one, but now you've got more debt. So don't spend it, but that will instantly improve your credit score.
Scott Dillingham:And there's quite a bit of benefits for having a better credit score. You can get better interest on your car loans. Potentially, you get better interest on your mortgage. Also, the higher the credit score, the more money that you can potentially borrow for your house. Right?
Scott Dillingham:If you're over six eighty, the lenders will allow you to borrow a higher percentage of debt ratios than if your credit score is under six eighty. So having a good credit score greatly increases your borrowing capacity, but it also helps with jobs. Some jobs check credit. And if they're analyzing two good candidates and they're not sure who they're gonna choose, going by the credit score is often a factor. So there's an unlimited amount of reasons why you would want a better credit score.
Scott Dillingham:I recommend following this podcast. So, obviously, checking for credit is not good. You wanna keep that as minimal as possible. Another thing too is if you have credit cards with, say, Capital One or MBNA, things like that, it doesn't have as much waiting as if you have a credit card at a major bank or financial institution. So I've seen clients that applied, and they got declined because they didn't have a bank credit card.
Scott Dillingham:They had a Capital One or MBNA. And that's because Capital One, they do have that credit repair program where they'll give almost anybody and everybody a credit card. If the lenders know anybody can get a credit card, not anybody, but mostly anybody could get a credit card at Capital One, then they don't put much strength in that credit card that you've opened. Where if it's at a bank, they know the banks have much tougher rules, so they will value the fact that you've got a credit card at the bank. So if you're someone who only has a Capital One or MBNA, I would suggest getting a bank card if you can, and then that will give you a nice boost to your credit.
Scott Dillingham:Another thing that people can do, and this is through any bank that you would go to, is you can do a debt consolidation. So if you have a lot of debts, and I'm not talking like a consumer proposal or bankruptcy, and you literally will go to the bank and they'll give you a loan and they group in all of your credit card debts and lines of credit, and they give you just a loan. So by doing this, you're gonna save an interest because credit card interest is usually around 20%, where a loan from a bank can be from seven to 12%, maybe lower if you've got a lot of income or a really good credit. But generally speaking, it cuts the interest rate in half. Right?
Scott Dillingham:So you have half the interest is cut in half, then you're also paying the principal. So with these loan payments, you're paying into the principal, and you can set the loan and depending on the lender anywhere from one year to seven years to pay back the debts. So you'll know you'll be those debts will be paid in that amount of time. So it gives you a nice little security blanket. Another thing to do is if you do sign up with Equifax or TransUnion, they do have a credit monitoring service where every couple months, you can log in, get an updated score.
Scott Dillingham:It'll also alert you if there was new credit checks, and you can see if that was or wasn't you. What happens when people apply for credit? We can pull their credit with their first and last name, or we can pull their credit with their SIN number. Now the SIN number is much more accurate because everyone has a unique SIN number, where lots of people have the same names. So sometimes someone could be applying for credit with your name.
Scott Dillingham:It actually happened to me. My father has the same name as me. He opened a cell phone and the cell phone reported under me. Now it he was not late. Everything was paid.
Scott Dillingham:That was all fine. But still seeing his cell phone opened up under me. I was like, what the heck? So if you have the same name as someone, that's at risk. So I do encourage you to try to get your credit checked using your SIN number.
Scott Dillingham:That way, you're not registering under somebody else. But I also realized in the same sense that not everybody wants to give out their SIN number, and that's why they use their name. So just keep in mind if you're someone that applies with credit only using your name and not your SIN number, that it could potentially get mixed up with somebody else. Just check that. And that's a lot of time, that's how things get on your credit report that are not yours.
Scott Dillingham:It's just from the name. Could have even been a typo in the name. Like, somebody typed the name wrong and it went to you instead of the other person. But high level, I think getting your report regularly, checking it out, that is the most important thing you can do. The banks and many like online banking services, they give you access, like free access to review your credit report.
Scott Dillingham:And I encourage you to leverage those, and again, if you don't have that free service as part of your banking, you can go direct to Equifax and you can get one free report per year. So they've got you covered there, and again, if you have the capacity to increase your limits and your utilization is high, do that. That is the number one quickest way to get your score up. And again, you'll get better interest rates, more lending options, all those good things. So thanks for tuning in today.
Scott Dillingham:I'm looking forward to chatting with you next time.