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7 Ways to Improve Your Credit Score

Did you know that a low credit score can impact your ability to get a job? Or that if your credit score suffers a setback, your insurance premiums can increase? In Canada, credit scores are used for far more than just rating your ability to pay back a loan. In fact, for many, the entire credit rating system itself is a mystery.

So, let’s get educated. Who is in control of your credit score? What do the scores mean? If you have a less-than-perfect score, or not much credit history to begin with, how can you go about increasing it? Let’s take a deep dive into the world of the Canadian credit scoring system so you can learn to gain more control.

Understanding Your Credit Score

The credit bureau leaders
There are two main leaders in the Canadian credit reporting industry who provide your score to those seeking it: Equifax and TransUnion. You are entitled to request one free credit report a year - a document that contains information about your credit history such as accounts, loans, and collections. Learn more about requesting your credit report here.

Each type of account you have is given a certain rating level depending on how well you’ve maintained that account, ranging from 1-9. For example, if you pay your credit card on time every month, that account will have a 1 rating. If you stopped making payments and the account had to be written off or went to collections, it will be given a 9 rating. These numbers go into creating your three-digit credit score.

Breaking down credit scores
Who knew this number could have such an impact on our quality of life? Or that accessing such an important number wouldn’t always be free? That’s right - in most cases, checking your own credit score costs you money. There are some services who say they offer free credit scores but beware; many of these offerings aren’t actually free at all. Utilizing the free credit reports from Equifax and TransUnion will help keep you in the clear.

Credit scores range from 300 to 900, with most Canadians hovering in the 600-650 territory. Let’s break down the implications of score groups with

Excellent (741 - 900)
With this high of a credit score, you’ve most likely had few or no late payments, pay off balances in full, and have a low credit utilization. You enjoy fast loan approvals, lowest interest rates, high credit limits, and have the best benefits credit cards have to offer. Basically, you are a credit score star.

Good (690 - 740)
You’re still getting access to some great rates and money products, and typically won’t have trouble getting a loan. This rating shows you are relatively financially responsible by making most payments on time and keep your credit utilization low.

Fair (660 - 689)
While you still have a lot of credit options within this range, you’ll likely get hit with some higher interest rates from lenders. You’ve made a few late payments to multiple lenders and may have a defaulted loan on your record.

Below Average (575 - 659)
You’re most likely still able to get access to loans and credit cards, but they will potentially come with a very high interest rate. The credit card perks also aren’t available to most in this credit range.

Low (300 - 574)
It becomes almost impossible to get a loan or open a credit card account in this score range. It means multiple defaulted loans, a high credit utilization, and/or a bankruptcy on your record. Check out your loan options for low credit now.

How to Improve Your Credit Score

If your credit score falls into one of the latter score ranges - don’t stress! There are seven ways you can start increasing your credit score, plus a few tips for keeping it that way.

1. Pay your bills on time
A lot harder said than done, but paying your bills on time has one of the biggest impacts on your credit score, making up around 35 per cent of the credit score pie. If you need help paying a surprise bill or bridging the gap between paychecks, we can help with a payday loan so you can avoid late payments.

2. Keep your credit utilization low
The other biggest slice of your credit score is how much you owe versus how much credit you have available. So, say you have a credit card with a $2,000 limit. If you owe any more than $600 on that credit card, you are above the preferred utilization rate of 30 per cent. Getting out of debt can be tough, but it’s important to focus on paying it down to increase your score anywhere between 40 and 80 points. Check out this article on tips for getting out of debt.

3. Mix up the type of credit
While it doesn’t have a huge impact on your score, the types of accounts you have can make the difference of a few points - enough to bump you up into a better score range. Having a credit card, car loan, line of credit, and use of services (like utilities) for example, is a healthy mix of credit type that the credit bureaus like to see.

4. Don’t move a lot
The credit bureaus are sometimes able to determine your address. If you move a lot, that suggests a level of instability that makes them a bit nervous. Again, not a huge impact on your score, but staying in one place not only helps your score but saves you moving costs.

5. Fix errors on your credit report
There isn’t a lot of information on how often errors happen on credit reports, but a survey done in 2005 suggested that around 18 per cent of Canadians had errors on their credit report. Many believe that number could be higher. Errors on your report can be devastating, so when you request your free report, go through it line by line. If you find an error, contact the company who reported it and get the information you need to have it fixed.

6. Pay off your no-money-down loans
Car loans and mortgages are two of the most common types of loans that consumers use that are considered “high-utilization” loans. Credit bureaus consider these loans more negatively than, say, a credit card that is not maxed out. Focus on paying those down faster.

7. Closely manage your accounts
Keep older accounts that you have; the longer your credit history, the more positive impact on your score. At the same time, limit the number of new accounts you have to what you can financially handle. Every new account you apply for can take a bite out of your score.

Increasing your credit score does take both education and dedication to getting your financial situation in order. While it takes time to see the fruits of your labour pay out, it’s worth every minute. Remember, we’re here if you need to take out a loan without a credit pull. Start your application now.

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