5 tips on improving your credit

5 tips on improving your credit

The loan application you made to buy your dream cabin at the lake was nearly rejected. That’s weird… you were sure you had good credit.

When you apply for a loan, your credit rating as well as your personal debt ratio are taken into account by the lender to decide whether or not to authorize the loan.

Let’s take a closer look with our 5 tips on improving your credit.

Understanding Credit

Credit Report

Your credit report is created as soon as you request or obtain a loan. It contains a lot of information on you:

  • Personal information: current address, previous addresses, etc.
  • Credit information: credit cards, mortgage, unpaid debts, etc.
  • Banking information: bounced cheques, etc.
  • Public information: court rulings, bankruptcy filings, etc.
  • Information on people or financial institutions who consulted your record
  • All other complementary information, like if you were ever a victim of identity theft

Credit Score

Your credit score, an indicator of your financial health at a given time, determines how risky it would be for a lender to lend you money.

It is calculated several different ways, and most often by credit reporting agencies (Equifax, TransUnion in Canada).

On a scale of 300 to 900, the higher the number, the better your rating and the lower a lending risk you pose with respect to other consumers.

Finding out your credit score

Given the rise in identity theft, the two agencies in Canada have developed a credit monitoring service, available for a monthly fee.

In addition to giving you your score, they will send you an alert every time a suspicious transaction is made in your name.

Equifax
TransUnion

Credit Rating

Your credit rating, which varies depending on your financial activities, is an assessment of your credit history as determined by the financial institutions that lend you money or give you a line of credit.

It varies from 1 (Congratulations! You always pay your bills within 30 days!) to 9 (Game over! You are no longer able to pay your bills!).

This rating is also specific to the type of credit obtained.

Improving Your Credit

1. Pay on time

This is the most important factor: always pay on time. Paying your bills late is VERY bad for your credit score.

Get organized and use technology: have alerts sent to your smartphone, sign up for preauthorized payments, etc.

What should you do if you can’t pay off your credit card bill? Pay the minimum.

Contact your lender immediately if you think you might be unable to make a payment.

If a bill is wrong, pay it so as not to ruin your credit and resolve the issue afterwards.

2. Go ahead and use credit!

This may seem strange, but in order to build a solid credit reputation, you need to use credit. Always paying cash or not having any debt is not the best way to build your credit.

In fact, having only one credit card is not as beneficial as having more than one, combined with a line of credit, for example.

Use them wisely and make sure to pay off your monthly bills. This will prove your ability to manage credit.

3. Be reasonable

Only use a percentage of the credit you have – approximately 35% of the total amount granted by all your credit products (credit cards, lines of credit, loans).

If you push your borrowing capacity to the limit, lenders will think you pose a higher risk, even if you pay on time.

4. Be nostalgic: keep your old credit cards

Keep your old credit cards, even if you never use them, as long as they do not have high fees.

Use them occasionally to keep them active. This will ensure a long credit history, which is an asset.

Don’t change credit card for no reason. Transfer the balance from an old account to a new one in order to take advantage of low interest rate offers may lower your credit rating.

5. Limit the number of credit applications and requests for credit information

Limit your credit applications.

Are you shopping for a home or auto loan? Do it over a short period of time (e.g., 2 weeks). That way, the applications to the various dealerships and mortgage lenders will be processed together, as though they were one request.

Limit the activities that require lenders to request your credit information because every request has an impact.

Your credit report is an important financial tool that can impact your ability to realize your projects and dreams. Make sure it is a valid representation of your financial situation. Check it often and follow this advice in case of identity theft.

If you made mistakes in the past, don’t worry! Be patient, your poor credit history will improve over time, even if it takes a few years.

Note: This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your avisor. SSQ cannot be held responsible for any decision made as a result of reading this blog post.