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Your credit score is a key component of your overall financial health. If you need to borrow money to buy a house or a car, a low credit score can make it impossible to get a loan.
Some people are pleased with their credit scores and others are disappointed. No matter where you find yourself, the question remains: how can I improve my credit score? The team of Licensed Insolvency Trustees from D. & A. MacLeod Company Ltd. has compiled the following tips that can help you take control of your credit and move toward achieving a higher credit rating. With locations in Ottawa and across Ontario, you’re never far from sound financial advice.
A credit score is a three-digit number that helps lenders determine your creditworthiness. It’s one of the first things banks and other financial institutions look at when determining if they’ll lend you money. It also plays a part in their evaluation of how much interest they’ll charge you.
In Canada, credit scores generally range from 300 to 900. People with credit scores above 660 are considered low-risk borrowers. This means they’re more likely to get approved for mortgages, personal loans and credit cards. Conversely, people with scores below 600 are considered high-risk borrowers, and they may find it difficult to secure a loan or line of credit.
The duration of time you’ve had credit
The balance you carry on each credit card and loan
The timeliness with which you make payments
The overall amount of debt you have
The amount of debt you have in relation to available credit
The types of credit you’re using
The number of recent credit applications
The presence of debts that have been sent to a collection agency
A record of having filed for bankruptcy
The score calculated for an individual may vary between credit bureaus and lenders. This is because each one uses a unique formula, which can lead to somewhat different results depending on the factors emphasized.
Your credit score can impact your ability to buy a house, rent an apartment, purchase a car and more. If yours is low, you can take steps to improve it.
Here are some things you can do to repair your credit score:
1. Order a free credit report
Call the credit bureau Equifax® at 1-800-465-7166 or visit their website to get your free credit report before you even apply for credit. Knowing what your credit report says before applying for credit will help you maintain or improve your own credit score.
A credit report provides a detailed look at your finances and credit history over the past six or seven years. It contains personal information, a credit account history, credit inquiries and public records. When applying for credit, lenders look at your credit report in addition to your credit score to determine how often you make payments on time and how many accounts you have in good standing.
Unfortunately, mistakes and outdated information on your credit report can hurt your credit score. You can request a free copy of your credit report from both of Canada’s two credit bureaus: Equifax and TransUnion. If you notice any payments that were marked late when you paid on time or entries that are too old to be listed, you should contact the credit bureau and request that the information be removed. Ensuring that you credit report is accurate and up to date will help you improve your credit score.
2. Pay your bills on time
Late payments can tank your credit score. It’s therefore important that you make the minimum payment on all bills and loans. Every day you’re late will lower your credit score. Even late payments made in full can negatively affect your score.
3. Demonstrate stability in your employment & residence.
If you have a steady source of income from the same employer, it can help improve your credit score. Similarly, living at the same address for a number of years is likely to have a positive effect. The stability of both your employment and place of residence are key factors in determining a credit score.
Many creditors like to see applicants who have remained at a consistent address or employer for at least one year. It goes without saying that creditors want applicants with a stable source of income. If your payments go into arrears, they’d also like to know where you live.
4. Increase your credit limit.
Increasing your credit limit is an effective way to boost your credit score. This is because your credit score is partially calculated based on how much of your total credit you’re currently using. Increasing the amount of credit that’s available to you will decrease your credit utilization rate and thereby help raise your credit score.
5. Start small and stay within your budget.
If you haven’t established a credit history, don’t apply for a big loan, mortgage or line of credit. You’ll have more success in getting an RRSP loan and paying it off within a year. That’s a win/win situation.
6. Use different types of credit.
Your credit score is likely to be higher if you have more than one type of credit, and if you don’t already, you should aim to diversify. In addition to a credit card, you should get a loan or line of credit. Mixing up the ways you use credit will have a significant impact on your score.
7. Consider applying for a secured credit card.
You deposit a pre-determined amount as collateral and then you’re ready to go. These funds are not used in place of payment, they are just held in the event of a default. Check with your financial institution to get more info on the secured credit cards they offer.
8. Establish an emergency fund.
Imagine losing your job, becoming ill or suffering a serious accident. How will you make the rent? Experts recommend establishing an emergency fund that has enough money for two months of household bills and expenses. Emergencies strike without warning, so being prepared is one of the most prudent financial decisions you can make.
9. Don’t hide the problem.
If you find yourself in uncertain financial waters and unable to pay the debts you’ve accrued, don’t try to hide from the problem. Contact your creditors to tell them why you’re falling behind in your payments and that you have every intention of paying your debts, but may need some leeway. If you are unable to pay your monthly bills, contact a licensed insolvency trustee in your area. They will review all of your options with you and help you make an informed decision.
10. Seek credit counselling
If you’re in debt, help is available. Indeed, getting assistance from a licensed insolvency trustee can allow you to regain control of your financial situation and consequently improve your credit score. D. & A. MacLeod Company Ltd. offers credit counselling services and can help you assess your situation and come up with a plan that will ensure you can meet your goals.
If you need assistance taking control of your finances, reach out to us. We’ll review your options with you and help you make informed decisions about how to improve your financial situation.
If a low credit score is holding you back, the licensed insolvency trustees at D. & A. MacLeod Company Ltd. can help. We’ll work with you to manage your debt and repair your credit score one step at a time. And if you have questions about whether filing a consumer proposal or consolidating your debt is right for you, we can help with that too. For over 65 years we’ve provided credit counselling and debt help to people in Ottawa, Kingston, Kanata, Brockville, Smith Falls, Pembroke, Cornwall and other parts of Eastern Ontario.
Contact us today to receive personalized financial assistance and learn more about your options.