I had an interesting conversation with a friend of mine the other night. After doing her groceries, she was approached by the grocer’s bank and offered a credit card. As a bonus for signing up she was offered some very “decadent” cookies; not the greatest incentive in the world, but who doesn’t want some free cookies? You might see different incentives depending on where you are they can range anywhere in value. I’ve been offered free newspaper subscriptions, 15% off my purchase at clothing stores, hell – one time I was offered a free bread maker.
These are all quick and easy ways to get free stuff. All you need to do is offer up some of your information, get a measly $500 credit card which (let’s be honest) you’ll stick in the freezer or cut up right away anyway, and you walk away with your brand new bread maker! What could go wrong? Well to my friends who have taken the cookies, the newspapers, the bread makers and basketball jerseys – you now have credit cards actively trading on your credit bureaus. This isn’t always a bad thing but for all intents and purposes, it’s a bad thing.
As an early twenty-something, you can take a few years before you start worrying about your RRSPs, TFSAs, or a mortgage (though I’d recommend you start now). You can still get away with using mom and dad’s subsidies or living in a basement apartment. But can you really afford to play with your credit score?
Each inquiry that is made against your bureau can have an impact on your credit score. If you are an “average” citizen you’ll have one or two credit cards, maybe a student loan and perhaps a mortgage. These would have all required credit checks but these are all healthy credit checks. After all, how can you establish credit if you don’t have anything to pay back? The real worry though lies in unhealthy credit checks. If you have bureau after bureau pulled as you apply for credit card, after credit card, after car loan, after credit card, you become known as a credit seeker. You are someone who prefers to live off of someone else’s money and you have access to credit that could cripple you if you made a few poor choices.
While money can be earned and spent in moments, your credit score is a lot more complex and dynamic. It doesn’t change as easily as your bank account and if you manage to get yourself into a particularly rough situation, it can take years to get out of it. Building and maintaining a great credit score takes constant management.
It truly is a shame that we can start amassing credit at the age of 18 but don’t gain any wisdom or advice until our late twenties. That’s nearly a decade of potentially reckless behaviour that can lead to bruised credit, bankruptcy, consumer proposals, identity theft, etc.
I don’t want to scare you. Having and managing credit can be an incredibly useful tool. But hurting your credit now could ruin your chances of owning a home later. In the grand scheme of things, were those cookies really worth a coveted look into your credit bureau?
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**Disclaimer: O.A.C. and E.O. & E. The above is simply a personal blog highlighting personal experience and opinion and is in no way condoning or suggesting any particular financial decision(s). All statistics are purely for hypothetical purposes and should not be referenced in any way. In no way should the opinions expressed here be considered investment advice, product recommendation or promotion. It is recommended that all investors seek the advice and guidance of Investment and Wealth Management Professionals.
Writer: Benjamin Sammut
Ben Sammut forms part of a father-son team working with Mortgage Architects in Toronto. Collectively their team has nearly 60 years of combined experience in the industry and handle over $100,000,000 in mortgage placement each year. He comes from a background in International Economics from the University of Ottawa and has been working in finance since graduation.
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