Your credit score is a 3-digit number provided by credit bureaus based on several factors. If your credit score is between 300 and 599, it is considered poor. If your credit score is above 800, it is considered excellent. The higher your credit score, the more likely you are to receive loan and credit approvals in the future. If you have a low credit score at the moment, there are a few steps you can take to improve this.
The first thing you need to understand is how your score is calculated. Several factors come into play and these include: payment history, length of credit history, the amount owed, types of credit and new credit history (recent activity). Your payment history is one of the most important factors as well as the current total amount of credit outstanding.
Do yourself a favor and request a free credit report each year for your own peace of mind. Inspect each aspect of this report and be on the lookout for errors. It is also important to keep records of all your payments in the event of such an error. You want to make sure that you have proof there is a mistake on their end.
Don’t miss payments no matter what and always pay your bills on time. Late or missed payments will have a devastating effect on your credit score. Even if you feel like your score is beyond redemption due to regular late payments in the past, you can rectify this by starting to make regular payments on time from today.
Don’t be tempted to max out your credit. Instead, you should take note of a guideline known as the credit utilization ratio. This ratio compares the amount of credit available with the amount used.
Remember, this does not apply to one credit source alone. It applies across the board! So, you can keep an eye on each creditor but you should also have an overall figure in mind. Your ratio should not exceed 30%. In other words, if you have $10,000 credit available, you should not spend more than $3,000 at any given time. This shows restraint and responsibility in terms of money management which will help you boost your score nicely. If needed, you can ask your creditor to increase your limit just to improve this ratio without actually spending more. You should also do everything in your power to ensure a lower balance each month so that the bureau can see you are paying your debt off rather than allowing it to accumulate.
It might be tempting to cut up an old card once it's paid off but you should avoid doing so. These cards reflect financial activity and will work to your advantage. Once you pay them off, you can spend a small amount again on the card and pay it off again to maintain a high credit score.
Instead of a single loan or credit card, try to diversify. Each line of credit will impact your credit score and, by maintaining a good mix of credit, it will affect your credit score by approximately 10%.
If you are looking for a new line of credit, loan or even buying a new car, make all of your inquiries within two weeks. By doing so, credit agencies do not count these as separate but rather as one.
Multiple inquiries can negatively affect your credit score which is why you want to limit this as much as possible.
If you have a fair amount of debt and you are struggling to pay each creditor, you may want to consider debt consolidation. This will help make payments easier since you only have to pay one creditor each month. It also lowers the amount you need to pay every month and you will enjoy a lower interest rate too!
If your credit score leaves much to be desired, you can always apply for a secured credit card. You will need to deposit a set amount into a particular bank account before the bank will grant you credit. This is the best approach if you are not able to apply for a regular credit card due to a very poor credit score. It will take some time, but your secured credit card will help you build trust with the bank and, in turn, with the credit bureau. As you can see, there are several ways of improving your credit score in Canada. The approach you choose will depend on your personal situation. Everyone is different and we all have different needs. Make sure that you discuss such plans with a professional financial adviser before taking action.
