For many people, the credit rating is a bit of a mystery. It’s a number that follows you everywhere, but you probably don’t see it every day. You may have no idea what your current credit rating is. Still, it’s a significant number, especially if you’re applying for a credit card, loan, or mortgage. If you want to improve your chances of being granted it, it will be a good idea to improve your credit rating.
What is a credit score?
Let’s start with the beginning. A credit score, also called a credit score, is a number that indicates how creditworthy you are. For example, when you apply for a loan, the bank may ask for your credit score and get a pretty good idea of how you’ve handled your financial obligations in the past, including whether you’ve paid your bills on time or repaid your loans. within the agreed deadlines. This is usually shown in a credit report, which provides further information about your credit history.
In Canada, credit scores range from 300 to 900 points and the higher your score, the better your score. A rating of over 725 is considered very good. A rating above 760 is considered excellent. If your score is low, you may have a harder time getting a loan, mortgage, or credit card approved.
Don’t forget that your potential building owners, employers, and insurance companies may also request a copy of your credit report. So even if you’re not planning on applying for a loan right now, there are plenty of reasons to bump your credit score to a higher band. And the sooner you get started, the happier you’ll be that you did.
It’s easy to pretend that you have no control over your credit score since it’s created by someone else and you don’t see it very often.
How is your credit score calculated?
To determine your credit rating, credit reporting agencies primarily consider the following:
- Your payment history – This includes things like whether you usually pay your bills on time, whether you’ve had dealings with a collection agency, or whether you’ve ever filed for bankruptcy.
- Your use of credit –The Financial Consumer Agency of Canada suggests avoiding using more than 35% of your available credit to maintain a good profile.
- The length of your credit history – The longer your accounts have been in good standing, the better off you are.
- Several inquiries – The number of times your credit report has been requested translates into the number of credit products you have requested. Too many requests in a short period can be a warning signal. However, do not worry: by requesting your credit report, you do not harm your credit rating.
- Different types of credit held – Having different types of credit – such as a credit card, loan, mortgage, or line of credit – can improve your score.
Five tips to improve your credit score
It’s easy to pretend that you have no control over your credit score since it’s created by someone else and you don’t see it very often. It is however based on your behavior, which means that it is possible to improve it. You can’t change it instantly, but you can influence it over time. So, if you’ve had difficulty obtaining credit products in the past, don’t worry: all is not lost!
Here are some steps you can take to improve your credit rating:
- Ask for a free copy of your credit report. It’s important to check your credit report occasionally to make sure all the information it provides is accurate and to identify any issues that could negatively affect your credit rating. In Canada, you can request a free credit report from Equifax gold TransUnion.
- Make your payments on time, every month. Your payment history is an important part of your credit rating. The longer you don’t miss a payment, the higher your rating will be. To make this easier, consider setting up automatic payments for your recurring bills.
- Keep your credit card account balances as low as possible. Ideally, you should pay off all of your credit cards each month. If that’s not possible, do your best. If you maintain a low balance compared to your available credit limit, credit reporting agencies will see this as responsible behavior.
- Do not cancel all of your cards at once. When you’ve brought your balance down to zero, it’ll be tempting to cancel your credit cards to avoid future problems, but since your credit score is based on your credit history, you’ll give less evidence of the good habits you have. taken if you cancel all your credit products.
- Also, don’t ask for too many loans or cards at once! Asking for too many loan products in a short period can be considered risky behavior.
Adopt good credit habits quickly to ensure a healthier financial life
Already, you probably see that most of our tips for improving your credit rating are simply common sense. Plus, you don’t have to have credit issues to follow them. If you have a good credit score, it’s almost certain that you’re already following some of these tips. These aren’t quick fixes, but rather good habits to ensure you have a better credit history — and a better future