If you want to improve your credit score, it’s important to define realistic and achievable goals with actions you’ll follow through on. While there is no quick fix for a score-in-trouble, there are some short-term and long-term strategies that you can employ to improve your score and get on the right financial track.
You need to determine what your goals are and what the timeline looks like. Be realistic. For example, if you’re swimming in credit card debt and barely making the minimum payments on time, your score won’t go from bad to good overnight.
However, it is realistic to plan for a score increase of 5-10 points every few weeks, so long as you know what to do stick to the plan.
But first thing’s first, you need to know what your credit score is first, and where you can find your credit report…
Get your FREE credit report & credit score
Did You Know: You can download a copy of your credit report and your credit score for FREE! The folks at Borrowell can set you up with a credit monitoring account in no time! Simply sign up with a few quick details and you’ll be examining your credit report within a few minutes!
Check your credit report for errors!
If you noticed errors on your report, that is your first priority before anything else. Correcting credit report errors can increase your score in large increments, but only if you take action. Well, you can ignore the errors and they may go away after 5, 6, or 7 years, but do you really want to wait that long?
You’ll need evidence of fraud or errors in the report. Get your documentation in order first, and give the bureaus a “scouting call” to determine what their process is to correct credit error mistakes.
As you continue to improve your credit history and your score, make sure to check for errors regularly. Experts say checking your credit once or twice a year for fraud is a good idea.
What is a good credit score?
660 and above are considered good. Anything above 660 points is considered good (660 to 724), very good (725 to 759), or excellent (760 to 900). Anything below 660 is considered fair (560 to 659), or poor (300 to 559). If you fall into this poor range, your journey to great credit may take a bit longer, but you’ll get there. Educating yourself is the first step to credit success, and that’s why we’re here to give you a headstart!
How to improve your credit score
Your credit score is not a static number. It can go up or down depending on your financial behaviour. Here are a few tips on how you can improve your credit score...
1. Be responsible with your credit cards!
Credit cards are great tools for improving credit, so long as you can control your spending. If your credit utilization is too high, it will negatively impact your credit score.
The basic formula for calculating credit utilization is to divide your credit card balance by your credit card limit, then multiply by 100. For example, if you have a $10,000 credit limit and a $5,000 balance, your credit utilization is 50%.
Your balances should be within 30% of your limits, meaning they should be paid off frequently. If you have credit cards that you never use, don’t close them. The older a credit account is, the better it is for your credit rating.
In fact, you should consider retiring your debit card instead. Debit cards do not help you build credit and do not come with rewards. Furthermore, most credit cards come with zero liability protection, so it's much easier to recoup funds if your credit card gets stolen.
Pro Tip: If managed correctly, credit cards are great for building credit. Even if you have really bad credit, there are credit cards that nearly anyone can get approved for. Capital One offers guaranteed Mastercards designed to help you repair your credit.
2. Do NOT miss a payment
If your bills are falling at times of the month that makes it hard to keep up with, call your credit card companies, hydro company, or cellular provider and ask if they’re willing to work out a better date for your bill to be paid.
Why does this matter?
Payment history has the greatest impact on your credit score calculation - it’s 35% of it!
Sometimes, all it takes is a little time to see where your money is going and small tweaks to make sure you’re on time, every time. For example, if you know you have 50% of your paycheck going to all of your bills in one pay period, that may help you budget a bit more efficiently.
If you have missed a payment, try to catch up as soon as possible. The longer it goes on, the worse the impact will be on your credit rating. Most credit card companies give a 30-day grace period before reporting to the credit bureaus.
Pro Tip: If you think you might miss a payment, call the financial institution in advance to make an arrangement. The temptation may be to just ignore doing these things but being proactive shows you're responsible and can help prevent further damage to your credit score. If missing payments due to forgetfulness is an issue for you, PAD’s (pre-authorized debit) are helpful. Now your bill payments are automated so you don’t even have to think about it!
3. Build a healthy combination of debt
Since too many lender inquiries can be damaging to your credit score, it's recommended that you're thoughtful and selective about applying for credit. But applying for right types of credit products can help you prove to lenders and credit bureaus that you’re responsible and capable of managing multiple debts.
Pro Tip: Multiple inquiries on the same type of loan (i.e. car loan) in a short period of time (30 days for a car loan) will only count as a single hard inquiry, which makes it possible to shop around for the best rates during this time without having to worry about inflicting further damage to your credit score.
What types of loans help build credit?
Here are some other loans that can help you improve your credit:
- Debt Consolidation Loans improve your credit rating by decreasing credit utilization. You can use our loans for debt consolidation by lumping all of your debts into one monthly (bi-weekly or weekly) payment. It’s more for ease of repayment, and, if used correctly, possibly even saving interest!
- Auto Loans are loans designed specifically for vehicle purchases. On-time payments help your credit score and the type of loan itself shows variety in your credit history. It may not be revolving credit, but it still counts significantly! Canada Drives specializes in auto loans for people facing all types of credit situations.
- Credit-building secured Loans are ideal if your credit is severely damaged and you can’t get approved for an unsecured loan. Credit repair companies can help you get your finances back on track. With a credit builder loan, every time you make a payment on time means good things for your credit score.
Start building credit today with Fresh Start Finance!
Fresh Start Finance serves Canadians facing all types of credit situations with practical advice and credit-building solutions. We also offer quick-and-easy secured and unsecured installment loans to help you take those first steps to a better financial future. Apply today to see how we can help!