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Keeping your credit score healthy

Numerous pitfalls exist that can lower credit scores, and some are easier to identify than others, agricultural financial experts say.

Credit history

How long credit has been in use and how it’s been used represents 15 per cent of credit score weighting, says farm management consultant Denise Filipchuck.

She notes making above minimum payments will improve a credit score.

“The account activity is also considered, so be sure to revolve the account monthly and keep it active,” Filipchuck says.

BDO’s Dennis Sudo adds banks will likely examine current and historical proximities to credit limits.

Multiple numbers of open accounts could also be factored, he says.

Credit inquiries

Experts say warn multiple credit inquires could detrimentally affect credit scores.

“It basically says you’re a credit seeker, you’re desperate for money right now, you’re going around to all the banks in town trying to get funds,” says Farm Credit Canada’s Kurt Makey.

Sudo encourages farmers to determine which credit bureau their bank uses.

“I believe that some bureaus will see multiple inquiries within a short time as one hit, understanding that one shops the market for the best terms/rates,” Sudo says. “Whereas others may see it as multiple hits.”

As the nature of farming often involves more frequent credit applications and inquiries, Filipchuck recommends farmers plan ahead and let their creditors know about planned purchases. This may also allow for package pre-approvals in advance of the purchases and reduce the amount of credit bureau inquiries, she says.

Changes to accounting standards

Far-reaching consequences may be in store if recent accounting standard changes have the widespread effect of Retractable or Mandatorily Redeemable Shares, or ROMRs, classified as a liability rather than equity, Sudo says.

ROMRs are common in farm corporations commonly issued in transactions, such as incorporations and estate freezes, explains Sudo.

For farmers who will need to classify their ROMRs as debt, Sudo suggests they meet with their lender to understand the effect that could have on credit.

Check credit reports

Experts also remind producers about the importance of regularly going over their credit bureau reports.

This protects them against any potentially fraudulent activity or errors in reporting, Filipchuck says.

Make a habit of reviewing your credit bureau reports – it can alert you of fraudulent activity or reporting errors.

“We could run into a customer who would say they made a payment, and we’d say based off of what your credit bureau’s showing, you didn’t, or it’s still being disputed,” Makey says. “At that point our instructions to that customer would be make sure they talk with (the appropriate credit bureau) and make sure the reporting’s up-to-date.”

Bottom line

Financial experts say there are several factors that can impact a credit score. Making above minimum payments help improve the score, while multiple credit inquiries could be detrimental. And since farming can mean more frequent credit inquiries, experts say producers should plan ahead and keep the line of communication open with creditors.

Article by: Richard Kamchen