Don't drown, Surf! - Managing debt with a smile!

There has always been a misconception when it comes to understanding debt, so let's take it from the beginning. Not all debt is bad, there is good debt and bad debt and there are ways to use both to your advantage. Good debt includes debt that is tied to an appreciating asset things like borrowing to buy a house (a mortgage), borrowing to invest (rrsp loans), "borrowing to buy a car" (i put this in quotation as this one can also be considered a bad debt for a number of reasons, cars dont appreciate but depreciate in value, however, that being said if you were to buy a car that you use daily and plan to keep for a while, and were able to get a good price, good terms and use the car for some time, it can be argued that this was good debt.) Bad debt includes things like credit card and line of credit debt that isn't necessarily tied to any assets. 

When looking at debt the main thing that is impacted is your credit score. Your credit score is very important when it comes to getting approved for any type of borrowing from either a financial institution or even a business. There are certain things that impact your credit score including:

• Age of your credit history - The age of your credit history makes lenders know that you have been utilizing credit for some time and are experienced with managing credit effectively. A longer history is better than someone just starting out, so make sure you keep that credit card you got 10 years ago.  

• Number of credit facilities you have - The number of credit facilities you have can either be a good thing or can be alarming to lenders, normally a healthy amount would be say 5 to  10. It' s is best not to have too many credit facilities.

• Type or mix of credit facilities - It is good to have a healthy mix of different types of credit facilities. This can include installment facilities like loans, mortgage or rent payments and revolving facilities like credit cards, line of credits etc.

• Payment history - Payment history shows lenders how you have been managing your payments, if you have been making your payments on time (even if it is just the minimum payment) or if you have been missing payments. 

• Frequency of your application for credit products - The frequency with which you apply for credit products also lets lenders know if you are a credit seeker which could be a cause for concern. 

• Outstanding borrowing (Revolving) - For credit card and lines of credit you want to keep your utilization under 30%, if you happen to have a higher balance and higher utilization on these facilities because of an emergency. You can always apply to increase the limits which could possibly bring your utilization down. 

If you are able to manage the above effectively you can be rest assured that you will fall in the higher end of the credit score scale ( in a  range of 400 to 900), which then guarantees that you will get pre-approvals, offers, reduced interest rates, and better terms.