Watch due dates and borrowing room for best credit scores
Everyone wants a great credit score and there are some steps farmers can take to not only build their own credit, but also avoid eroding a credit score.
Payment history
Nothing’s more important than making your payments when they’re due, experts emphasize.
“At 35 per cent of the credit score weighting, payment history is the biggest factor that determines your credit score,” says farm management consultant Denise Filipchuck. “Pay all business and personal bills on time to avoid penalties and delinquencies.”
Payment history is the biggest factor that determines your credit score.
Missing a payment by 30 days or more will have a negative impact on a credit bureau score, says Kurt Makey, credit learning specialist with Farm Credit Canada.
If you do happen to miss a payment, don’t panic, just ensure you avoid doing so again .
“So long as I keep making my payment moving forward, the impact of that (missed payment) wears off,” Makey says.
In difficult financial times, be open and transparent with your creditor and warn them of payment issues well ahead of any crisis, adds Lance Stockbrugger, a farmer and chartered accountant.
Credit utilization
Another risky action to avoid is using more than 30 per cent of the authorized limit of revolving credit accounts, the most common example of which is a credit card, Filipchuck says.
“As this area weighs 30 per cent of your credit score, it is important to be mindful of your credit usage,” Filipchuck stresses.
If one requires additional credit, Filipchuck advises requesting an increase to the limit as opposed to obtaining an additional revolving credit account or credit card.
Makey also urges against financial difficulty red flags like exceeding your credit account balance.
“It’s very obvious if you’ve got three accounts and they’re all over their limits, there must be something happening that’s not doing well, and that will impact the score of the credit bureau,” Makey says.
Plan ahead, adds Stockbrugger. Use budgeting, to be shared with lenders, in order to determine when funds are required.
“And allow the creditor to have credit facilities in place so no one is scrambling to get funds for a sudden capital purchase or overdrawn bank account,” Stockbrugger says.
Bottom line
Achieving and maintaining a solid credit score is important personally and for a farm operation. Financial experts stress the importance of on-time payments and staying within credit limits. In times of financial stress, be open and transparent with creditors and warm them well in advance of any issues, experts say.
Article by: Richard Kamchen
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