What is a credit score?
When you borrow money from a bank or a lender, they share your details with the credit bureau. Over time the credit bureau collects additional information, such as debt owed, purchase history, and how often you pay your bills on time. These factors help calculate your credit score, a three-digit number that shows potential lenders the amount of debt you can repay.
The Canadian credit score ranges from 300 to 900, and the ranking is as follows:
- 800 – 900: Excellent credit score
- 720 – 799: Very Good credit score
- 650 – 719: Good credit score
- 600 – 649: Fair credit score
- 300 – 599: Poor credit score
The lower your score, the higher the risk for the lender. Low credit scores make it challenging to get loans or credit cards – you might be offered a smaller credit limit and be charged higher interest rates. To help newcomers gain credit history in Canada, most banks issue a newcomer credit card when you open an account. This can be enough to get you started in building a solid credit history. Boosting your credit score is the next step. Some simple ways to achieve that can include:
Paying your bills on time
Your payment history contributes significantly to your credit score, and delayed payments reflect negatively on your credit report. To avoid any negative impact on your credit score, it’s crucial to pay off your credit cards on time. A great trick can be to automate payments to avoid paying late fees or higher interest rates.
Inspect your credit report and score
Sometimes, you can receive a false report due to errors regarding your personal information, payment information, and debt history. An inaccurate credit report can negatively affect your credit scores, impacting your ability to take loans, and you may have to pay high interest. It is recommended that you check your report regularly to ensure accuracy.
Use credit wisely
It is always advisable to stay within your card limits. Try to keep balances under 60% of the limit.
Keep old credit alive
The length of your credit history directly impacts your credit score. Keep your credit cards and try to show some routine activity to build your history. In addition, you will also have a lower total credit limit by cancelling old lines of credit, negatively affecting your credit utilization ratio.
Limit your number of credit applications and checks
Limit your credit applications and apply for credit only when it is necessary. If you’re shopping for a car or a mortgage, get quotes from different lenders within two weeks. The inquiries will be combined into a single inquiry on your credit.
Vary your credit
Credit diversification and the use of different forms of credit, such as credit cards, instalment loans, mortgages, lines of credit, etc., may help you improve your credit score. Managing these credit facilities can indicate to credit bureaus that you are a good borrower.
Consolidate your debt
A low-interest credit card with a balance transfer can save you thousands of dollars in interest payments if you have a relatively high credit balance and find it difficult to repay it. You should make the most of this by paying a significant debt during the low-interest period.
By following the simple steps mentioned above, you can improve your scores by over 100 points. To learn more on how to effectively manage your credit cards and work on improving your credit score, contact the Vine Group today!