Credit is a staple in our modern world. And many of us have been impacted by the COVID-19 pandemic over recent months. As businesses begin to open up, we thought it would be an appropriate time to discuss some ways to improve your credit score. Gone are the days of buying a home with two bags of flour and a handshake. You need credit to qualify for big-ticket items like cars and homes, and often for smaller items, like mobile phones. Your credit score determines whether financial institutions and other lenders will give you money for such purchases.
Credit scores offer a snapshot of how likely you are to repay your debts on time. If your credit score reflects a positive credit history, it can be really helpful. For example, a financial institution will use your score to see if you’re eligible for a line of credit to remodel your kitchen. An auto dealer or lender will check your score to see if you qualify for a loan to buy a new car, and what rate you should get for that loan. Some employers and landlords will also check your credit scores to make decisions.
Your credit history and score are important. How can you boost your credit score?
Tips for building better credit
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Understand your credit score
A credit score is a number calculated by credit bureaus that determines what is lent to you. Credit bureaus give you points when you show that you use credit responsibly. They take away points when you show you have trouble managing credit (and debt). What influences your score? The Canadian government identifies a few key factors:
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- if you carry a balance on your credit cards
- if you regularly miss payments
- the amount of your outstanding debts
- how close you are to your credit limit
- how many times you’ve tried to get credit
- if you’ve applied for bankruptcy
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Stay on top of payments
Paying off your debts will keep your credit score from plummeting. So try to repay your full debt on time, every time. That means paying your full loan and mortgage payments. It also means paying off your full credit card balance every month. When life makes that impossible, what can you do? You can use credit only when necessary so you can repay it each month. You can also make at least the minimum payments. And you can contact your lender if you think you won’t make a payment on time and work out a solution.
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Manage your usage
Remember that less is more: use as little of your available credit as possible and don’t go over your limit. How much credit you use affects your credit score — even if you pay it back on time. If you have a credit card with a limit of $1,000 and use $900 of that limit every month, you’re using 90% of your credit. Lenders may see you as a greater risk if you regularly use of a lot of your available credit.
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Limit your credit applications
If you apply for credit, or have frequent credit checks, that impacts your credit report and how lenders see you – they may think you’re living beyond your means. So think about what you need and only apply for credit when necessary.
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Give it time
There are no quick fixes for low credit scores. You need to build up your positive credit history over time. Start with a small amount of credit and keep payments manageable, like a regular mobile phone bill paid on a credit card. Over time, you can build up to include various types credit, like a line of credit, with a mortgage or car loan thrown in for good measure. Be careful not to take on too much debt though. Only take on debt that you can afford to pay back each month and you’ll slowly build your positive credit score.
Not sure where to start?
No problem. We're here to help you get headed in the right direction. Give us a call, or set up a time to come in and see us.