Financial health check: Improving your credit score
Debt is often discussed in negative terms; however, the reality is borrowing money is an important part of everyday modern life.
Accessing credit is often imperative when it comes to life’s milestone moments. From buying a car to a family home, your credit score will be taken into consideration whether good or bad and this can be the difference between a loan being approved or not.
In Canada there are two main consumer credit agencies that not only keep every Canadian’s credit score on file but also keep track of how you use it. Equifix and TransUnion both follow spending on credit cards, mortgages, lines of credit and even watch out for defaults on bill payments to create your credit score.
Having a strong credit profile makes it easier to borrow money at a low interest rate and is imperative for many employment and residential opportunities, with it being common for landlords and employers to carry out credit checks.
But just what exactly can you do if you find your credit score doesn’t quite make the grade? Small changes can make a big difference when working towards improving your score.
Having a strong credit profile makes it easier to borrow money at a low interest rate!
Here we shine a light on seven simple ways you can make a difference.
- Be aware
One of the most important factors of managing your credit score is to keep track of your payment history. This may seem obvious, however, being aware of what payments you make and when is vital when trying to improve your credit score. Making at the least the minimum payments of each bill on time, even if a payment is in dispute, is one of the easiest courses of action you can take. Worried you won’t be able to pay a bill on time? Contact the lender straight away to make arrangements for late payment.
- Different credit types
Did you know that your credit score could be lower if you only use one type of credit? Using a credit card will have an influence on improving your score, however, it’s better to have different types of credit such as a car loan and a line of credit when working to improve your credit rating. Be sure only to take on an amount of money you can comfortably pay back otherwise this could have a negative impact on your score.
- Savvy spending
It may seem obvious but one of the most important things to consider when trying to improve your credit score is to be aware of what you’re spending. It is recommended that you try to spend less than 35% of your available credit to reduce your perceived risk to lenders. Only using credit cards or loans for unexpected or one-off payments is the easiest way to keep track.
- Error check
It’s a good idea to check your credit report at least once a year to ensure all your information is correct. If you spot any errors, you should contact the credit bureaus to ask for a correction as soon as possible. Errors to keep an eye out for include someone else’s information in your file, debts that aren’t yours or incorrect payment history.
- Increase credit limit
This may seem like a counterproductive suggestion at first as many people think that increasing your payment limit just offers the opportunity to spend beyond your means. However, increasing your credit and spending it wisely can have a positive impact on your score as your lower the overall credit utilization.
- Set up automatic payments and reminders
There’s no denying the fact that the pace of life is continually increasing, with it becoming increasingly more difficult to juggle a myriad of different commitments in a day. Understandably this can make remembering a range of different payment dates a little difficult, however, defaulting on a payment will have a negative impact on your score. Avoid this by setting up automatic payments with your creditors or set up payment reminders.
- Limit number of credit applications / credit checks
Too many credit checks on your report could be a red flag to lenders, suggesting you’re urgently trying to get credit or are living beyond your means. It’s advised to avoid ‘’hard hits’ on your file – these are credit checks that appear on your file and can be seen by anyone who views your credit report. Credit card applications and some employment applications are classed as hard hits. Controlling the number of credit checks on your report is simple – limit the number of times you apply for credit and only apply for credit when you really need it.