We were very happy to hear this week, that finally, the youth of Ontario will be learning about financial literacy as part of their school curriculum. The details are yet to be rolled out, but it’s a step in the right direction.
As it stands, we learn our financial habits primarily from our parents and self-education. We spend years in school memorizing math equations that are rarely ever applicable in the real world. Yet, the fundamental principles of earning money, saving, establishing and using credit wisely, are things that are not taught in school. It sounds like that’s about to change, and hopefully soon.
We see it all the time. Consumers who have overextended themselves with credit card debt, lines of credit, car loans – you name it. And we aren’t just talking about young, inexperienced people. Professionals earning hundreds of thousands of dollars find themselves in the same boat quite regularly and often have trouble establishing and maintaining a strong credit score.
We often help our clients whom have equity in their property, by refinancing to consolidate debt, saving thousands in interest. Lenders often put conditions on refinances that require credit cards and lines of credit to be paid off and closed. They want to mitigate risk that clients will find themselves maxed out again, unable to carry the payments, resulting in default.
We agree with this in some cases, but we fight to enable our clients to keep their credit in tact, and help encourage them change the behaviours associated with credit. Good credit habits last a lifetime and it’s never too late to improve.
HERE ARE 3 WAYS TO STRENGTHEN YOUR CREDIT:
- MAINTAIN AT LEAST 2 CREDIT CARDS. Lenders need to see that you handle credit responsibly so rather than closing everything, pick and choose wisely. Keep your 2 oldest credit cards – the longer you’ve had them, the better it looks on your credit bureau.
- FOLLOW THE 2/2/2/RULE. Lenders want to see 2 trade lines (credit cards) with a minimum $2000 limit, paid on time each month. They also need to stay within the limit – don’t max it out. The more room there is between the balance and the limit, the better.
- USE REGULARLY, WITH RESPECT. These 2 trade lines need to be actively used. Set yourself up with a monthly gym membership charge, or cell phone bill. Then set yourself up to pay it off in full every month.
Following these steps and teaching them to your kids and grandkids will help in the long run. Contact us for a mortgage and credit check-up, we’ll be happy to help.