A credit score is a geometric number used to decide the creditworthiness of an anyone, base on credit history. Lenders or creditors use credit scores to evaluate the possibility that a person will pay back his or her debts. The credit score model was created by the light Isaac Corporation, also known as FICO, and it is used by a financial institution. A person’s bad credit score ranges from C$100 to C$1000. The higher the score, the more financially trustworthy a person is considered to be.
People can possess higher credit scores by maintain a history of timely repayments and keeping their debt low. A credit score plays a crucial role in a lender’s decision to offer credit. People with a credit score below 650 are at higher risk of loan denial and if approved, they will have to pay higher interest rates than that of borrowers with the good credit score. Canada operates with a credit score ranges from C$100 to C$1000. The lower your score, the less likely you are to be approved for a loan or credit card. If you do manage to get accepted for a loan with a low credit score, the interest rate you receive will likely be high.
On the other hand, the high your credit score, the greater are the chances to be approved for a credit card or loan at a lower interest rate. Good credit can also help you rent an apartment house, get a better job, get approved for cover coverage at a lower premium and get a better plan for your cable, phone or utilities.
- Excellent (741-900)
- Good (690-740)
- Fair/average (660-689)
- Below average (575-659)
- Poor (300-574)
Canadians are entitled to get free credit report once per year from major credit agencies namely Equip fax and Trans Union. If you can’t wait for a year to get your credit report, free report from the credit department, Borrow-ell, a Canadian financial technology company and credit monitoring service, can give you free access to your credit score every month. Many factors can influence a credit score positively or harmfully such as payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit (10%).
Having a good credit score is a costly tool for anyone who is trying to navigate his/her financial life. Making a decent income and saving money are the healthy practices of having a good credit score, but if you don’t have one you can still work on humanizing your score by following some easy steps: It is necessary to carefully review your credit report from the credit reporting agencies for any wrong information or errors.
Pay Your Bills on Time:- Lenders review your credit report to check your credit score when they are interested to know you dependably you can pay your bills. Your past payment performance is considered a good predictor of future performance. Your credit score is basically a reflection of your ability to pay back debt effectively. You should avoid things like late payments, defaults, missed payments, foreclosures and third party collections. So, make sure to pay your bills on time. 12 months of regular payments are required to see a noticeable difference in your score.
Reduce the Amount of Debt You Owe:- Keep your balances low on credit cards and other revolving credit. The most effectual way to improve your credit score is by paying down your revolving credit card debt. Come up with a payment plan that makes most of your monthly budget.
Increase Your Credit Limit:- If your account is in good standing, you will be decided for an increase in your credit limit. It is important not to spend the increased credit limit amount so that you can have a lower credit utilization rate.
Don’t Shut a Credit Card Account:- If you have taken a pledge to not your credit cards, it is best to not use them in its place of closing them. Closing your credit card can hurt your credit score.
Monitor Your Payment History:- Your payment history is the most important factor for your credit score. To improve your payment history you should always make payments on time. You must make at least the minimum payment if you can’t pay the full amount you owe. If you find trouble in paying the bills, contact your lender right away.
Use Your Credit Wisely:- It is suggested that you should avoid going over your credit limit. Use only a percentage of your available credit. Try not to use 30% of your available credit in your card. Lenders will see you at greater risk if you use a lot of your available credit limit in your card.
Increase the Length of Your Credit History:- It is careful to be better for a credit score if you have a credit account open or in use for a longer period. Your credit score may be lower if you have relatively new credit accounts.
Limit the Amount of Credit Applications or Credit Checks:- If there are too many credit checks and applications in your credit report, lenders think you are desperate about getting finance and trying to build beyond your means. So, keep credit checks and application as imperfect as possible.
Use different types of credit:- It will affect your credit score badly if you keep using one type of credit product such as your credit cards. It is better to have a mix of credit like a credit card, a car/home loan and a line of credit. A mixed line of credit can help in improving your credit score if you pay back the borrower finance on time. Otherwise, you end up hurting your credit score more by taking on too much debt.
Leave Old Debts On Your Credit Report:- If you want to improve your credit score, then it is necessary to have credit, to begin with. Many new Canadians often run into this problem as they are just starting up to establish themselves financially. It can be a wise idea to keep old credit account open as the longer your history of using credit responsibly, the better.
Set Up Automate Payments:- If you have a bad or low credit score due to past credit defaults, you must consider setting up automatic payments for those debts that have fixed payments.
Use Your Credit More Often:- One of the best ways to repair your credit score is to use your credit more often. Credit is built based on your installment repayment capability and as long as you pay your dues on time, you can able to manage your finances efficiently.
Have A Secured Credit Card Account:- You can build your credit score by opening a secured credit card account. This account requires you to pay an upfront fee, but it can be used as a regular credit card. This kind of card is good for someone with a poor credit score or who may have a harder time getting approved for a card or loan.
Keep Your Credit Card Balance Low:- It is not a good practice to have a high balance on your credit cards. Not paying off your credit card dues can affect your credit score badly. So, keep your credit to less than 30% of your available credit. Avoid opening new accounts. It is a bad idea to open new credit accounts as lenders will not like it as to them it would mean that you are taking on more debt and may have problems in paying them off. So, keep your loan accounts to a minimum.
Establish A Credit Score Objective:-The good way to enhance your credit score is by setting a goal and aim to achieve it. Like if your credit score is 620 then try to get up a credit score to 670 within 100 days, by paying down your debt on time and avoiding new debt. For that, you need to review your credit score regularly.
Sustain An Emergency Fund:- Building for rainy days to six months to 1 year can help you keep your credit robust and avoid any errors on your credit card score.
Pay off Debts in Good Standing:- Focus on debts first rather than accounts that have already gone into collections. Unfortunately, accounts in the collection have already made their entry to affect your credit score and it will remain on your credit report for seven years even if you pay them off. So, it’s best to put your money toward the accounts that can help you look better, quicker.
Become Someone’s Authorized User:- If you have a friend or family member with a good credit history and score, see if they can consider adding you to a few of their cards as an authorized user. They are not giving you the card but letting you soak up their solid credit card goodness to improve your credit score.