Credit scores are an important part of your financial well-being – from getting a job, buying a car or house, and renting a new apartment. With higher scores, you’ll qualify for better interest rates and potentially save thousands of dollars.
Here are 7 tips that can help you improve your credit score fast and over time.
7 ways to improve your Credit Score fast
1. Always pay your bills on time
With payment history weighing 35% credit scores calculations, it’s not surprising that the first and most important thing you can do to improve your score is to always pay on time.
A history of on-time payments is an indicator that you’re creditworthy and will be able to repay your debt.
While it is advisable to always pay the full amount you’re owing – to avoid paying credit card interest for example – if you can’t, ensure you make the minimum payment at least.
And if you’re struggling to meet your payment obligations, it’s better to arrange for a deferral with your creditors than miss a payment.
Lastly, never skip a payment even if you’re disputing the bill.
Mistakes do happen but they could be costly. So, automate your payments by setting up automated transfers from your chequing account.
2. Use credit responsibly
Using your credit responsibly means not going above your limit and keeping your credit utilization low.
Credit utilization is the ratio of the balance you’re carrying to your total credit limit.
In general, you should try to keep your balance below 35% of your credit limit. From a lender’s perspective: the higher the ratio of your debt to the available credit, the greater the risk of missing payments in the future.
And that leads to the next tip
3. Improve your credit utilization ratio
Credit utilization is calculated as used credit (amount owing) divided by available credit (total limit on all your credit cards and revolving lines of credit).
For example, someone with a balance of $500 on a credit limit of $2,000 has 25% credit utilization.
It is important to keep it low since it weighs 30% in calculating credit scores.
To improve the ratio and indirectly improve your credit score, simply
1. Pay down your debts
The easiest way to do this is by paying your balance in full each month.
But if you’re struggling with paying your monthly bills, you may consider a low-interest loan or debt consolidation. Since the payments will be made in installments, the loans won’t count towards your credit utilization.
Also, you’ll likely get a lower interest rate on the loans compared to credit card rates and save on interest payments.
2. Increase your credit limits
You can simply request for an increase in credit limit or apply for another credit card. However, you may see a temporary drop in your credit score due to the inquiry on your credit file. The new credit card issuer will most likely need to do a hard inquiry, but the current card issuer may not. So, it’s worth asking and considering your options.
But remember that the objective is not to increase your debt. It is to increase your available limit and indirectly improve your credit utilization ratio.
4. Keep old credit accounts open
Your credit history contributes 15% to your credit score. In general, the longer you’ve had a credit account open, the higher your credit score will be.
Lenders will be interested in seeing how you’ve been able to manage credit over a long period of time. So avoid closing old credit cards, especially if there are no fees on the card.
Beyond improving the length of your credit history, keeping an old credit account open will also improve your credit utilization ratio.
On the other hand, closing it will reduce your available credit and may worsen your credit utilization ratio.
5. Limit the number of new credit applications
All requests to access your credit file, either hard or soft, are recorded and logged in the file.
So, too many credit checks may be an early sign of financial trouble. Lenders may think you’re living beyond your means and in urgent need of new credit.
To limit the number of inquiries on your file, limit the number of times you apply for new credits and only apply when it is necessary, and you really need it.
It is okay to shop around for the best rates on a mortgage or car loan as long as you do it within a 2-week period. All the inquiries will be treated as one for the purpose of calculating your credit score.
6. Use a mix of Credit types
Credit scoring models consider your credit mix. Credit mix refers to the different types of credit you have.
In general, there are four different types of credit:
- installment loans (fixed number of payments)
- revolving debt
- open accounts (for example mobile phone plans) and
Having a healthy mix of these four credit types will improve your credit score. However, you should not apply for a new credit simply to boost your scores if you don’t need it.
Credit mix, while important, is a smaller factor in calculating your credit score.
7. Monitor your credit report and credit score regularly
You need to keep track of your credit report and credit scores on a regular basis. This way, you can quickly spot any errors, for example a payment deferral incorrectly reported as missed payment, or unauthorized credit applications.
An unauthorized credit application could be a sign of a bigger problem – identity theft- and you’ll need to act fast to limit the damage and prevent further fraudulent use of your information.
Related Post: How To Check and Correct Errors On Your Credit Report
What is a good credit score in Canada?
Credit scores range between 300 and 900, and while there are different scoring models used for the calculation, they all have same objective – predicting the borrower’s ability or likelihood to repay the debt.
Here is a general guide:
- Excellent: 760 – 900
- Very Good: 725 – 759
- Good: 660 – 724
- Fair: 560-659
- Poor: 300 – 559
The higher your score, the more confidence lenders will have in your ability to service your future debt repayments.
On the other hand, the lower the credit score, especially for those in the poor range, the harder it will be to get approved for credit or qualify for better loan terms.
A good credit history and credit score will help you access credit on better terms when you need it. So it’s important to know the best practices and ways to improve your credit score.
With some of these tips, you’ll see an immediate boost in your scores. Others may take some time. If you’re looking to build your credit and follow these best practices, you’ll see a gradual improvement over time and eventually get to the excellent range.
Start today by checking your credit score and credit report for free.