Improve Your Credit Score!
Credit scores can take years to build up and only a few small mistakes to destroy. Having a good credit score can provide lower interest rates on credit cards and loans, better chances for credit card and loan approval and more negotiating power. Starting off with a good credit score will only help you improve your credit score to be great! In addition to making the right decisions regarding your credit, it’s also important to be consistent. Follow these easy steps to improve your credit score!
Watch your balances
One of the most popular – and terrible – myths floating around is that carrying a balance on your credit card and only paying the minimum due each month will help improve your credit score. This is not true!
A major factor in your credit score is how much revolving credit you have compared to how much you’re actually using. The optimum is 30% or lower. To improve your credit score, it’s important to pay down your balances and keep them low. A good mindset to have, is to not spend anything more than what you can pay off by the end of the month. Getting into this mindset will help you improve your credit score.
Accept a credit limit increase
Many Canadians think that when your lender offers you a credit increase, it’s important to decline this because they’re trying to lure you into a trap. Yes, they might be, but you can use this as a advantage to improve your credit score.
As previously mentioned, your utilization – the amount of your credit limit you use – is a large factor in your credit score. For example, if you have one credit card with a $1500 limit and spend $700 a month on your card, that’s a 46% utilization ratio.
Now your bank has offered you a $1000 increase to your credit limit. If you accept this and keep spending your $700 a month, your utilization ratio will decrease to roughly 28%.
While it can be beneficial to accept the credit increase, if you know you tend to overspend and will probably max out a card with a higher credit limit, stay away from an increase or a second card. You want to avoid things that will not help you improve your credit score. The other thing to keep in mind is that you should only accept this when your bank offers it. Experts say that if you call and ask for an increase, the company may put a hard inquiry on your report which can result in a 10-point drop. When trying to improve your credit score you want to avoid getting hard inquiries.
Leave old debt on your report
Some people believe that old debt on their credit report is a negative thing and does not improve your credit score. The minute they get something paid off, whether it is their house or car, they immediately reach out to get it removed from their report. This will not necessarily help improve your credit score.
Arguing to get old accounts off your report because they’re paid doesn’t make sense. As long as this debt was in good standing, it’s actually a good thing that it doesn’t get removed. You’ll continue to get credit from this positive account for years to come which helps to improve your credit score.
If the debt is negative because you continuously missed payments, it will stay on your report for up to seven years. Unfortunately, no phone calls can remove this debt from your report regardless of it being paid off.
Pay bills ON TIME!
The surest way to kill your credit score is to not pay your debts on time. Making a credit card payment even one day late will hurt your score. Ensuring that your avoid being even one day late will help you to improve your credit score.
If you’re paying online, send the payment at least three banking days before its due to allow for processing times. Even if you’re struggling and feeling like you’re going to fall behind, take the option out of your hands and set up a small automatic payment to your card issuer each month to ensure you will at least pay the minimum. This will help you improve your credit score.
While one late payment won’t really affect someone with a strong credit history, one or two missed payments can destroy the credit rating of someone with much less credit history.
Know your score
The credit score range in Canada is 300 to 900 – and the higher your score is the better. It reflects your credit history over the past six years. Only 5% of Canadians have a score of 850 or better.
Being aware of your credit score is important and let’s you know if you need to improve your credit score. If you know you’re looking to apply for a mortgage or a new car loan, maybe you need to take some steps to increase it so you can assure lower interest rates. A good, average credit score is 760 – anything less than this may need a little extra work to improve your credit score.
You can get a free report from Equifax or TransUnion. These reports will include your credit history and current credit outstanding. For a small fee, they will include your credit score as well. This will help you determine if you need to improve your credit score.
If you have destroyed your credit score or if you feel you’re on a downward spiral and want to improve your credit score, being aware and knowing that you need to start taking steps to improve your credit score is a good start. Start with these 5 simple steps to start improve your credit score today!