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How to build and maintain a good credit?

Q-I heard that every time I apply for a new credit or department store card, my credit rating takes a hit, is that true? So what is the fastest way to build up credit history?

A-You are correct; every time you apply for new credit it affects your FICO score.

FICO score is a statistical model developed by Fair, Isaac and Co. which translates your credit information from various sources into a 3 digit score. It runs from 300 to 900 and higher score is better and indicate that you are more likely to pay your bills on time. Score above 700 is generally considered to be good. Your score is calculated each day based on information in your credit file.

Following factors affect your credit score:

  1. Past payment history
  2. Number of credit accounts
  3. Amount owed in each account
  4. Total credit available
  5. Length of time each account is established
  6. Number of recent searches for new credit

In order to build and maintain good credit you have to show a consistent good payment behavior over long run. Unfortunately there is no quick solution, but here is what you can do to continuously improve your credit:

  1. Always pay your bills on time. Most banks allow you to setup convenient online bill payment. You can also automate the bill payment process by signing up direct debits so you do not miss any bill payment.
  2. Paying the bill in full saves you high interest charges. But if you cannot make full payment; try not to use your credit limit to maximum. Utilizing the full available credit indicates to lender that you are a potential risk.
  3. Do not apply for too many credit cards or credit lines because each enquiry is recorded in credit report. High number of recent inquiries indicates that you are in financial difficulty.
  4. Check your credit bureau report frequently for any wrong information and correct any errors in the report.
  5. Be aware of identity theft; unscrupulous people can use your name to get credit which can affect your score.
  6. If you become victim of identity fraud, report it immediately to authorities as well as to credit bureaus. Both Equifax and Transunion have the ability to add Fraud Alert on your profile which instructs lenders to call you before extending credit.

Posted by

Mr. Sharma is a management accountant with over 33 years of experience in small business. He has been engaged in independent accounting practice since 2003. With MBA degree in IT Management and CPA, CMA designation he believes in creating value for the clients. Mr. Sharma has been actively involved in imports, exports, retail, construction and IT consulting. He has written articles in the “Canadian Immigrant” magazine on taxation and accounting for small business. He has served as director on the boards of York Regional Community Foundation, Community Living of York South and Surrey Foundation. He is a member of CAPS (Canadian Association of Professional Speakers), Rotary Club of Richmond Hill, Markham Board of Trade and Richmond Hill Chamber of Commerce.

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