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One of the most common reader questions of the past few years can be summarized as follows: “What does xxx mean for my credit score?”

It is time to share a secret of credit score management: Pay what you owe on time, and never borrow even close to the maximum amount lenders will give you. Do only that and you will not have a problem borrowing at a competitive interest rate.

The latest question on credit scores was a response to a newsletter of earlier this year on the importance of paying off credit card debt. A reader asked: “How does carrying a credit card balance affect your credit score?” I did a little reading on this and it turns out that some people believe carrying a card balance is better for your credit score than paying what you owe in full every month.

Not true. Outstanding balances can hurt your score when they’re more than 30 per cent of a card’s borrowing limit, according to a big U.S. credit reporting company. “Maintaining a zero balance by paying off all purchases in full each month is the best of all.”

Your credit score is a your history as a borrower distilled into a number on a scale that generally ranges from 300 to 900. A growing number of banks offer online access to credit scores at no cost, and there are websites and apps that do likewise. Some basics for interpreting the numbers from Equifax, another credit reporting company: 760 and up is considered excellent, while 660 to 759 is good or very good. Below 660, you may have trouble getting the best rate on a loan or mortgage.

Obviously, late payments and running up a big balance on a bunch of credit cards or a credit line can hurt your credit score. But there also little things that can reduce your score, like adding a new credit card or cancelling a credit card you’ve had for years and replacing it with a new one. I added a new card a couple of years ago and my score fell a bit for a several months. Now, it’s back where it was before.

Credit scores are actually a product – lots of money is made in gathering, analyzing and presenting this data to lenders. What you need to know about credit scores is very simple: Pay on time and borrow less than you could.


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Rob’s personal finance reading list

Investments vs. inflation

An investing blogger looks at how various types of investments work as an inflation hedge. Exchange-traded funds holding commodities look best, while bitcoin and gold were weakest. I like dividend growth stocks – many have a track record of average annual dividend increases ahead of even today’s elevated inflation rate.

RESP 1-2-3

An investing blogger takes you through his process of choosing an asset allocation ETF for his children’s registered education savings plan. Asset allocation ETFs simplify investing like nothing else – each one is a mix of stocks and bonds tuned to a particular level of risk. Parents of young kids could certainly go with an asset allocation ETF mostly in stocks. Does our investing blogger agree?

Anyone remember Beanie Babies?

Beanie Babies are basically stuffed animals with cute names. They were a trend of the 1990s and a reminder to anyone sinking big bucks into fads – NFTs, maybe – that demand for hot collectibles of the moment can disappear.

Guess who has a top five-year GIC rate

Canadian Imperial Bank of Commerce has been offering a special rate of 3.25 per cent on five-year GICs. Here’s some chatter about the offer on an online forum, and an online resource for comparing top rates.


Today’s financial tool

The mobile phone app Flashfood is designed to connect you to food at grocery stores that would end up in landfill if not purchased. Discounts of up to 50 per cent. I wrote about a similar app called Too Good to Go in a recent newsletter.


The Money-Free Zone

I’ve been enjoying Stevie Wonder’s Saturn lately. A song for these times.


Tweet of the week

I like this suggestion from The Food Professor, aka Sylvain Charlebois: “Instead of restrictions for the unvaccinated, how about a tax break for the vaccinated?”


In case you missed these Globe and Mail personal finance-related stories

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