After hearing about people in financial trouble after over-extending their credit, you might think it’s best to avoid credit altogether.
However, without any credit history, securing some of life’s bigger-ticket items, like a car loan or a mortgage, becomes challenging.
“Credit can be both your best friend and your worst enemy,” explains Pennie Carey, assistant vice-president and branch manager at Procura Mortgage in Everett.
“Credit is a very powerful tool and it’s like most tools – if you use it carefully, you can create something beautiful, but use it incorrectly, you can create a mess that will take years to correct.”
Whenever you apply for credit – from a credit card to a home loan – lenders factor your credit score into their decision.
Factors affecting your credit score include:
- Your payment history
- How much you owe compared to how much you can borrow
- The type of credit you have
- New credit
- Your length of credit history
Making credit work for you
It’s important to note, however, that not all credit is created equally, Carey notes.
“A mortgage is good credit to have on your credit report – it indicates stability, that you’ve put down roots,” she explains.
Auto loans can be good or bad, depending on your lender. A lower-interest loan from a major lender such as General Motors or Alaska USA will cause less of a hit on your credit score than a higher-interest loan from a smaller lender.
To build – or rebuild – your credit score, Carey offers 4 suggestions:
- Keep your credit load below 35 percent of your available credit and make regular payments
- Purchase a home with a mortgage
- Pay off rotating loans like credit cards (or get them to that 35 percent mark or below), rather than instalment loans like car loans
- Avoid too many searches of your credit score – with each inquiry, your score takes a hit of 11 to 12 points and it can take many months to recover. Some credit card companies will pull your credit score each year by default – something you can opt out of. And it’s not only new credit applications that affect your score. Insurance providers, phone companies, utilities, employers and others can all ask to access your credit score.
For an optimal credit score, Carey recommends three elements: a mortgage, a quality car loan and one credit card, you make regular payments on. And you don’t need to use your credit card often to have a positive effect on your score. Every six months so, buy something significant, but then pay it off before the end of the month to avoid interest.
To learn more about your mortgage options call to book an appointment at 425-257-4441, visit Procura Mortgage online or stop by the branch at 2924 Colby Ave. in Everett. You can also follow them on Facebook.