How to increase your credit score
There are two major companies that maintain your credit scores in Canada: Equifax and TransUnion. Both agencies collect information from lenders and other businesses to compile reports on Canadians’ credit history, and both use slightly different scoring models — so your score may vary depending on which company is reporting it. Your credit score is a 3-digit number from 300 to 900. A higher score means you are more likely to repay your debts and are seen as less risky by lenders. Higher credit scores also means more favorable interest rates than that of lower scores.
To increase your credit score, you will need to show responsible borrowing behavior. Responsible borrowing means not having a lot of debt, paying your bills on time, and not applying for a lot of new credit.
Here are some of the strategies you can use to improve your credit score:
- Pay your bills on time. Your payment history is the most important factor in determining your credit score. Make at least the minimum payment if you cannot pay the full amount and do so within a 30 day cycle or as required by your agreement if it is less than 30 days.
- Do not exceed your credit limit. Exceeding your credit limit can lower your credit score.
- Keeping your charges on your credit card to less than 50% of the value of the credit card limit is a favourable indication of the proper use of credit by the lender.
- The age of your credit accounts plays a role in determining your credit score. If you cancel an old account or close an old credit card, this reduces the age of your average account which can have a negative impact on your credit score. Try to keep old accounts open if possible and ensure any cards that have annual fees are worth using for the fee charged each year.
- Limit the number of credit applications or credit checks. If there are too many credit checks in your credit report, lenders may think that you are urgently seeking credit or trying to live beyond your means.
Remember that your credit score is one of the best indicators of your actual financial health, so make sure to always remain on top of it. There are many ways to improve your credit score and overall finances, and through credit counselling, we can help you determine which is the best option for you.