Lifestyle

How to Improve Your Credit Score

How to Improve Your Credit Score
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  • Tvine
| Feb 3, 2023
Reviewed, Jul 3, 2023
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    Credit scores are an increasingly critical measure of economic and financial success in Canada. With a range from 300 to 900, these 3 digits can determine the privilege you’re afforded when accessing mortgages, loans, credit cards or even rental properties. If your score is on the low side, don’t despair! There are strategies available for improving it,given enough dedication and determination. Ready to get started? Here’s some advice that should help put you back on track toward securing long-term financial prosperity!


    Key Highlights

    • Check your credit report regularly to avoid errors and fraud.
    • Multiple diverse and established credit facilities can help you maintain the top scores.
    • Reduce debt utilization and avoid hard checks to increase credit scores.

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    Check Your Credit Report

    Taking control of your credit score is an essential first step toward financial independence. For starters, request a copy of your report from Equifax or TransUnion. These are the main credit bureaus. You can also get free online credit reports through Intuit Credit Karma and Borrowell. If you use any others, please be sure to pick credible ones before you give away your sensitive details. 

    When you review the report, pay special attention to any errors that may have inadvertently slipped through and check for any nefarious activity like fraud or identity theft, if anything suspicious appears, dispute it promptly with the credit bureau directly.

    Pay Your Bills on Time

    Missed payments can wreak havoc on your credit score, so staying organized and keeping your bills up-to-date is wise.  Setting up automatic payments or reminders is a great way to stay ahead of the game. If you’re stretched thin and struggling with bill payment deadlines, don’t despair; negotiating more manageable repayment plans may help you get ahead faster.

    Reduce Your Debt

    If debt has taken over your finances, it’s time to take action! Your credit score is at risk when large amounts of high-interest debt weigh you down; the good news is there are several ways to get a handle on it. To start, prioritize paying off those expensive balances first–whether that be through consolidation with a low-interest loan or strategic balance transfers between cards. Taking steps towards getting control of your indebtedness can help restore financial security and give you better overall credit health in the long run.

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    Maintain a Healthy Credit Utilization

    A good credit score is an essential part of your financial health  and keeping tabs on your credit utilization ratio plays a significant role. Your credit utilization ratio is your average limit compared to what’s available and should sit at 30% or lower for optimal results. To reduce that number, consider paying off obligations with high-interest rates first.  Accepting pre-approved limit increases will also reduce this ratio. Be sure to examine where spending could reasonably be reduced without hurting your lifestyle.

    Build a Diverse Credit History

    A well-rounded credit profile is vital to maintaining – or improving – your credit score. A healthy mix of diverse credit facilities, such as mortgages, loans and credit cards, can add much-needed diversity to your history. To maximize the benefits, you must always use these wisely while ensuring timely payments are made. Late could adversely affect your credit score.

    Avoid Closing Old Credit Cards

    If you’re a responsible borrower looking to maintain good credit, consider keeping your old credit cards open. Frequently using them shows lenders that you can handle borrowing and helps keep your long-standing credit history intact. Maintaining older credit facilities shows character and the ability to manage debts over an extended period.

    Be Careful with Credit Inquiries

    When considering additional credit, proceed with caution – each time a lender checks your creditworthiness, this can affect your score. Be discerning when it comes to what loan and card products you apply for, and avoid going into overdrive by submitting too many applications in quick succession.  It is recommended that you take credit limit increases whenever offered; however, only accept new credit products if you plan on keeping and maintaining them for long terms, such as 10 or 20 years.  If you need to change credit cards – consider a switch.  Whenever a new facility is added to your credit report, it may reduce your score by up to 50 points. 

    Only apply for a new facility after all other options are considered.  Avoid this as much as possible – especially 6 months before applying for a mortgage.  Successful and timely bill payments over 3 to 6 months will generally return all points taken away due to a new credit inquiry (hard credit check).

    FAQ

    What is a Credit Score?

    A credit score is a numerical value assigned to an individual’s creditworthiness. The score ranges from 300 to 900, with a higher score indicating lower risk and better creditworthiness. In Canada, the two main credit bureaus are Equifax and TransUnion, which provide credit scores and credit reports. It is based on an analysis of their credit history and other financial information and is used by lenders to determine the risk of lending money to that person. A credit score helps lenders predict the likelihood of a borrower defaulting on a loan and is used to decide loan approvals, interest rates, and credit limits. 

    Where to Check Your Credit Score Online?

    In Canada, you can check your credit score online for free from the two main credit bureaus: Equifax and TransUnion. Some banks and financial institutions may also offer free credit score checks for their customers. Additionally, several online services, such as Borrowell or Intuit Credit Karma, allow you to check your credit score and credit report for free. It’s essential to check your credit score regularly to monitor any changes and ensure there are no errors on your report that may be affecting your score.

    What is the average Canadian credit score?

    According to credit bureaus in Canada, the average Canadian credit score is around 700. However, it’s important to note that credit scores can vary significantly based on several factors, such as payment history, credit utilization, and overall credit history. It’s also worth mentioning that credit scores in Canada can range from 300 to 900, and a score of 700 is considered to be in the “good” range. You should check your credit report regularly and take steps to improve it if necessary.

    Is 700 a good credit score?

    Yes, a credit score of 700 is considered good in Canada. Credit scores in Canada range from 300 to 900, and a score of 700 or higher is generally considered good. A good credit score can make it easier to get approved for mortgages, loans and other forms of credit and can also help you secure lower interest rates and better terms on your loans and credit cards. It’s important to remember that credit scores can vary significantly based on several factors. Factors such as payment history, credit utilization, and overall credit history can all impact your credit score. So it’s always a good idea to check your credit report regularly and take steps to improve your score if necessary.

    How can I improve my credit score in 30 days?

    Improving your credit score in 30 days can be challenging, as making meaningful changes to your credit history and credit utilization takes time. However, there are a few steps you can take to help improve your credit score in a short period:

    1. Review your credit report: Get a copy and review it for any errors or inaccuracies. Dispute any errors with the credit bureau to get them corrected.
    2. Pay down high credit card balances: High credit card balances can lower your credit utilization rate, which is a factor in determining your credit score. Pay your balances or make extra payments to reduce your credit utilization rate.
    3. Avoid new hard inquiries: Hard inquiries can lower your credit score, so avoid applying for new credit or loans in the next 30 to 180 days.
    4. Make all payments on time: Late payments can harm your credit score, so make sure you pay all bills on time for the next 30 to 180 days.
    5. Keep balances low on credit cards: Try to keep your credit card balances low and pay them off in full each month (or every two weeks if you get paid on a biweekly frequency) to improve your credit utilization.

    By following these steps and managing your credit wisely, you can positively impact your credit score in 30 to 180 days. However, it’s important to remember that building a good credit score takes time and requires consistent effort over a more extended period.

    How Are Credit Scores Calculated?

    Credit scores are calculated using a complex algorithm that considers various factors from a person’s credit history and financial situation. Some of the critical factors that affect a credit score include:

    1. Payment history: Late or missed payments hurt a credit score, while on-time payments help improve it.
    2. Credit utilization: The amount of credit used compared to the amount of credit available, known as credit utilization, is also a factor. Using a high percentage of available credit can lower a credit score.
    3. Length of credit history: A more extended credit history is generally seen as a positive factor, as it shows a pattern of responsible credit usage over time.
    4. Types of credit: The mix of different types of credit, such as credit cards, loans, and mortgages, are also considered.
    5. New credit applications: Every time an individual applies for credit, it creates a hard inquiry on their credit report, which can lower their credit score.
    6. Outstanding debt: The amount of debt an individual has and the number of accounts with balances can also impact their credit score.

    Check out this resource from Equifax on how the FICO Beacon 9 credit score is calculated.

    How to Improve Your Credit Score?

    1. Monitor & build your credit report

    2. Open a credit card and never miss a payment

    3. Keep your credit utilization rate low

    4. Avoid hard inquiries on your account

    5. Increase your credit limit for existing credit cards

    6. Pay down revolving account balances

    7. Always dispute any credit report errorsAvoid, closing unused credit cards

    8. Be consistent with on-time payments

    9. Seek professional help from a credit counselling agency if needed.

    Improving your credit score takes time and effort, but by following these steps, you can take control of your credit and build a strong credit history. Remember, a good credit score can significantly impact your financial life, so it’s worth investing time and effort to improve it.

    How Long Does It Take to Rebuild a Credit Score?

    Rebuilding a credit score takes time and effort, and the length of time can vary depending on the individual’s financial situation and the steps they take to improve their credit. On average, it can take several months to a year to see a significant improvement in a credit score. However, the exact amount of time it takes can depend on various factors, such as the amount of debt an individual has, their payment history, and the actions they take to improve their credit. It’s essential to be consistent and persistent in taking positive steps to improve your credit score and to monitor your progress regularly by checking your credit report and score.

    What Can a Good Credit Score Unlock?

    A good credit score can significantly impact your financial life and open up many opportunities. Some of the benefits of having a good credit score include the following:

    1. Lower interest rates: A good credit score can help you qualify for lower interest rates on loans and credit cards, resulting in lower monthly payments and the overall cost of borrowing.
    2. Better mortgage options: A good credit score can help you qualify for better mortgage rates and terms, making homeownership more affordable.
    3. Increased credit limit: A good credit score may also result in a higher credit limit for your credit card, giving you more flexibility and purchasing power.
    4. Improved insurance rates: A good credit score can sometimes lead to lower insurance rates. Some insurance companies may view a good credit score as a sign of financial responsibility.
    5. Easy loan approvals: A good credit score can make it easier to get approved for loans and other forms of credit, including personal loans, car loans, and home equity loans.

    Overall, a good credit score can be valuable and help you achieve your financial goals.

    Final Thoughts

    Your credit report is essential because it’s one of the main things lenders look at when considering you for a loan. It is advisable and prudent to check your credit report regularly to ensure it stays up to date. You can contact nesto’s commission-free mortgage experts to understand your options and how you can help get approved for your mortgage with the best terms and conditions.


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