Because loans are a necessary part of life for most Canadians, you probably know how important it is to have a good credit score. Your credit score can affect your future and quality of life when you’re applying for a loan. Credit scores take into account years of past behaviour. While you may not carry a balance and likely pay off your credit card every month, there may be ways you’re holding yourself back from improving your credit score. Improving your credit score is an endeavour that will take time. In fact, you should probably be wary of any methods promising to fix your credit overnight. So, you may be wondering “how do I improve my credit score?”. Here at John Antle Mortgages, we’ve compiled a few key steps you can take to start improving your credit rating.
Keep Track of Your Payment History
Keeping track of your payment history is the most important factor when building your credit. This means paying your balance on time, or at least the balance owed by the due date. If a bill is in dispute, you should still pay it off to make sure it’s not negatively affecting your credit. Additionally, if you know you’re going to have trouble paying a bill, make sure you contact your lender as soon as possible.
If you’re worried about forgetting to pay a bill, you can set up payment reminders. Some banks offer reminders through their online platform and can send you a reminder notification or email when your balance is close to being due.
It should be noted that not all payments will count towards your credit score, such as student loans. However, if you miss enough payments and your loan is sent to a collections agency, this will show up negatively on your credit report.
Use Different Types of Credit
Another way to improve your credit score includes using different types of credit. If you only have one source of credit, such as a credit card, your overall credit rating may be lower. Taking on a car loan, or a line of credit can actually help improve your credit rating if you’re able to make your payments and don’t carry an outrageous balance.
Monitor Your Credit Card Balance
One of the most important factors to keep in mind is how much credit is revolving, and how much credit you’re actually using. The smaller the amount of credit you’re using is – the better. You should never go over your allotted amount on your credit card, either. The optimal amount of credit to use is 30 percent or lower.
Keeping the amount of credit you’re using low and paying off your balances can help increase your credit score. If you have multiple credit card balances, you may want to consider consolidating them into a personal loan which may help you in the long run.
Reduce the Number of Credit Applications You Make
Having too many credit checks in a period of time can negatively affect your credit score. However, not all credit checks will show up on your credit report. Every time your credit score is requested, it will be either a ‘soft’ or a ‘hard’ inquiry.
A hard inquiry will be recorded on your credit report whenever a lender checks your credit score. Additionally, if you’re applying to rent and there is a required credit check, it may also show up on your report depending on who’s checking your credit.
Soft inquiries occur when you or a third party check your credit for non-lending purposes. This could be applying to rent a home, applying for a job or applying for insurance, to name a few. These inquiries are only visible to you and the party that made the request. These requests will not affect your credit.
Before giving anyone permission to check your credit, inquire how the credit check will be recorded. Hard inquiries can impact your credit score and remain on your report for three to six years.
Keep in mind, a certain number of credit checks is normal, such as a credit check when you purchase a home. If you have many checks in a short period of time, it may signal to lenders that you are trying to acquire credit urgently, or trying to live beyond your means.
Improving your credit is not an overnight process. However, if you follow these tips, over time your credit rating will start to improve.