Improving credit scores requires patience and discipline. To save money, cut back on spending. To lower balances, pay more than the minimum due each month. To boost credit scores, make monthly payments on time, keep balances low and make at least 30% of your payments on time.
Unexpected circumstances can and do occur. Everyone makes mistakes. We all could forget to pay a bill or overdraw our account. But we all know life happens, and when it does, we must be prepared to handle it.
While it’s impossible to predict every situation, there are some things you can do to help minimize the impact that unexpected hiccups may have on your credit. If your credit score has taken a beating, there are a few steps you can take to turn it around.
Here are ten steps you can take to increase your credit score and work toward financial independence, starting with simply knowing what your credit score means.
1. Know What Your Credit Score Currently Is
Two national credit bureaus operate in Canada; TransUnion and Equifax. Both collect and store credit information about consumers, and each score may vary slightly. Credit information includes payment history, type of credit, and credit capacity.
You can request a free copy of your credit report once a year from each nationwide credit reporting agency. Your credit bureau will send you the report within 30 days. It is just a matter of providing basic identification information and mailing the form to receive your current credit scores. If you want instant results, fees are involved.
How to Get Your Free Credit Score in Canada
You can get your Equifax credit score and report for free from Borrowell. Your credit score and report are updated every week, and there are no fees. Mogo gives you access to your free credit scores (Equifax). These scores are updated each month. There are also free credit scores offered by Credit Karma (TransUnion). With CreditKarma, you can also access your credit report.
2. Understand What Your Score Means
Now comes the interpretation of your credit score. This part is up to you. Your credit report summarizes your credit history, and it shows your behavior with credit. Your credit score is a number, generally between 300 and 950, that reflects your behavior with credit. The higher your number, the more creditworthy you are considered.
Credit Score Catagories
Credit scores fall into four categories, generally referred to as poor, average, good, and excellent. Poor scores indicate a person’s credit risk is elevated. Average scores fall in the middle range. Good scores indicate a person is creditworthy and will probably pay back the loan. Excellent scores mean a person demonstrates an excellent credit history.
- Poor credit: under 500
- Average credit: usually between 600-650
- Good credit: 660 to 734
- Excellent credit: over 760
Suppose you need extra support understanding your credit report. In that case, you can also visit the Government of Canada’s resource page, which offers tools and information to help you understand your credit report and how to improve your credit rating. Or, follow Credito’s Credit Score Guide For Beginners.
3. Fix Any Errors On Your Report
As you review your credit report, be on the lookout for incorrect information. If there are accounts or debts that you haven’t opened or know about, contact the creditor and ask them to remove them, as it could be a simple mistake. Additionally, you can ask the bureau to remove this information from your file or ask the bureau to correct any inaccurate information if creditors aren’t willing to fix erroneous information. You will be required to provide documentation to prove your case.
4. Don’t Remove Old Debt
For a lot of us, our credit history reflects us. It’s how banks, landlords, and others make decisions about our financial well-being. So, if you haven’t established any credit, you can’t improve your score.
But building credit isn’t that hard. You have to start by making small purchases on a credit card – something most banks are willing to offer to young people. If you have a good history of using credit responsibly, there’s no reason not to keep using it. By keeping your old accounts open, you will continue to build your credit profile. The length of your credit history is a significant factor in many lenders’ credit decisions.
5. Start Using Your Credit (Wisely)
In order to improve your credit score, you must use credit if your credit rating is low. Utilize your credit card and pay it off on time to improve your credit score. Credito even offers you the opportunity to purchase a car and rebuild your credit by making consistent payments on your car loan.
In order to obtain credit, you must demonstrate to lenders that you are a dependable borrower by using credit responsibly and repaying it on time. You will improve your credit rating as you use credit and repay it on time more frequently.
6. Keep your balance low (but increase your credit limit)
Take advantage of any credit limit increase your credit card company may offer. Using credit cards for big purchases can be rewarding, but it’s important to remember that interest can be charged on all purchases, even those that are paid in full each month. Credit card spending can skyrocket if you don’t keep careful track of how much you’re putting on the card, and it’s easy to spend more than you expected.
When you are offered an increase in credit limit, the lender is assuming you can handle it. So, if you accept, your spending increases, and your debt to income ratio goes up. Improving your credit score requires more than just paying your bills on time, however. To really boost your credit score, you must also not exceed 50% of your available credit. Some experts also recommend not opening too many new credit accounts at once.
Another way to raise your credit score is to become an “authorized user” of someone else’s account. An individual with a good credit history may be able to add you as an authorized user to their own credit card. Although they are not required to give you a credit card, their high credit score will positively impact your credit score.
7.Be On Time When Paying Bills
The following tip is commonly repeated, but may be the most important. In order to enhance your credit score, one of the simplest things you can do is to pay your bills on time.
Payment history accounts for about 35% of your credit score; therefore, if you consistently make late payments or skip payments altogether, your credit score will be affected.
8. Set Up Automated Payments
Automating your payments will simplify Step 7. Automating debt payments will prevent payments from being missed for any debt that has fixed payments. Your credit card bill can also alert you when it’s due if you do online banking. Automation will set reminders for you so you won’t have to remember. It will also prompt you to pay on time, and you won’t have to worry about the bills piling up.
If you can’t set up automation – making sure your bills are paid on time every month – then the next best thing is to set up reminders on smartphones. That way, you still get reminders of due dates, but you do have to set aside time to pay bills.
9. Avoid Hard Credit Inquiries When Possible
Obtaining a hard inquiry from a prospective lender is the only way a lender can decide whether or not to approve your loan. These credit checks lower your credit score and remain on your report for two years. Keep hard checks to a minimum or avoid them if you are able. You should educate yourself about credit checks and how they affect your credit score.
10. Keeps Tabs On Your Credit History
Maintain a clear understanding of your credit history. Keep an eye on your credit card bills to ensure that there are no mistakes. Be sure that all of your payments are made on time. In order to ensure that your credit report is accurate, request a free copy every year in order to verify there are no discrepancies.
Regardless of your credit score, if you know where you stand, you can make a much more informed decision.
Now is the time to start building a good credit score
You need not worry if you have a bad credit history or no credit history.
Following all of the helpful information provided in this guide above, you can begin building a good credit score today. Avoid making these mistakes by learning the factors that adversely affect your credit score.
Contact Credito right now if you need help paying your bills or consolidating high-interest loans.
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