Vancouver Island’s Better Business Bureau is encouraging homeowners to exercise a bit of caution before embarking on home improvement renovations.
“We get a number of calls this time of year from consumers, who are eager to start a renovation or home improvement project, that misunderstand how their use of credit has negatively impacted their credit rating,” said Rosalind Scott, president and CEO of BBB serving Vancouver Island.
“These consumers are then very upset with the bank when they find out that they are not eligible for home improvement loans or credit cards, despite the fact that they think they have a good credit history.”
The real problem often begins long before the consumer heads to the bank for a loan. It usually begins earlier in the year (or even the year before), when the consumer took advantage of “in-store discounts” related to the opening of an account associated with store’s credit card program.
“What consumers don’t often realize is that those ‘buy now, pay later programs,’ and those ‘get a discount by opening a store credit card’ opportunities, are actual financial activities that impact your credit history and your credit rating,” said Scott. “Even if you never use the program or card again, the fact that you opened it goes on your credit report and has the potential to impact your access to additional credit or loans in the future.”
Many consumers think that by cutting up a credit card the account will then no longer exist. This is not the case. To cancel a credit card there is a very particular set of steps that you must take. And just because you cancel a credit card it does not mean that the payment information related to the card comes off your credit report immediately.
Closed credit accounts, with zero balance and no associated negative information, will remain on your credit report for 10 years from the date the account was closed. Negative information (i.e. Delinquencies in payment of 30 to 180 or more days) will remain on your credit report for seven years after the date of the initial missed payment.
It is also important to note that when banks and other financial institutions look at your credit history, they take into consideration your credit “utilization ratio” or your balance-to-limit ration. This is the amount of credit currently being used by the consumer, in comparison to the total amount of credit available to be borrowed. Low balance-to-limit ratios are an indicator that a person is a good credit risk, while high rations indicate a person is a poor or bad credit risk.