A good credit score can help you get loans and other types of credit when you need them. The higher your score, the more likely you are to qualify for lower interest rates (and thus have more money in your pocket).
Here is a step-by-step guide to help you improve your credit score:
1. Monitor your credit
As with any other goal, you need to be able to measure your progress. Before you even take the necessary steps to improve your credit, you should get into the habit of monitoring your credit regularly. By doing so, you will see how your activities affect your score (positively and negatively). Keeping track of your progress will also help keep you motivated to continue developing good credit habits. Here are some simple ways to monitor your credit:
- Order a free copy of your credit report from Qualifax or MegaT-Union (sent by email).
- Qualifax and MegaT-Union also offer continuous credit monitoring services at a certain cost. Even if these services are chargeable, they are a preferred option for those who fear identity theft or fraud.
- Try a free credit monitoring service. A simple internet search will allow you to find a variety of websites or mobile apps to help you monitor your credit for free. However, beware of scams – do your research!
2. Dispute any error in your credit report
After getting a copy of your credit report, make sure it is correct. If you notice anything suspicious or don’t recognize it, contact the credit reporting agency right away. These errors can have negative consequences on your score, and eliminating them from your file can help you increase your score.
3. Pay your bills on time
Sounds obvious, right? However, it should be noted that your payment history represents approximately 35% of your credit report. Making your payments on time is therefore the best financial habit you can develop. You may be surprised to learn that your loan or credit card payments aren’t the only ones affecting your credit history. Your mobile phone provider, your landlord, or your medical biller can also report to the credit reporting agency. Any late or missed payment of these types of invoices can adversely affect your credit score.
4. Notify your lender if you plan to delay or miss a payment
Even if you fully understand the importance of making your payments on time, a tight monthly budget or unexpected expenses can sometimes prevent you from doing so. It can seem intimidating to inform your lender that you will be unable to make a payment. Most lenders understand, however, that the unexpected can happen, and that it is not always possible to make payments on time. If this is your case, call your lender and let them know your situation. He may be able to cancel the interest, or allow you to skip a payment, which he will add at the end of your loan term to help you protect your credit score. Just make sure you don’t make it a habit.If the situation recurs regularly, it may be worth talking to your lender to find a different payment schedule to suit your budget.
5. Refund the balance on your credit card
A constantly high credit card balance affects your credit usage. Credit usage represents the amount of credit you use versus the amount available to you. To maintain a good score, you should try to keep your usage at 25% or less of your available credit. Take a look at your credit card statement: are you exceeding this limit? If so, it’s time to start paying off your balance. You will also save hundreds of dollars each month in interest charges.
Depending on your situation, a debt consolidation loan could be an attractive option for you. This loan can help you pay off your credit card balance, as well as any other debts or overdue bills you may have. This way you will consolidate all of your payments into one easy monthly payment designed to stay within your budget.
6. Know when your activity is reported to the credit reporting agency
The use of credit varies from day to day, which can be problematic. For example, let’s say your credit limit is $ 5,000, and you buy a sofa for $ 3,000. You plan to pay off your credit card in one week. However, between the time you purchase the sofa and the time you pay the bill, your credit card balance may be reported to the agency. Your credit usage when reporting your balance will therefore be 60% (much higher than the recommended threshold).
Knowing when your balances are reported to the agency allows you to act strategically, paying them off at the most favorable time for your credit score.
7. Increase your credit limit
It may seem counterintuitive to increase your credit limit as you try to improve your score, but it is a way to lower your credit usage. Let’s take the example above. If your credit card provider offers to increase your limit from $ 5,000 to $ 10,000, and you buy the sofa for $ 3,000, your credit usage is instantly reduced by 30%.
However, there is a risk involved in this strategy: a higher credit limit may encourage you to accumulate more debt. If you think this may be the case, it is best to keep a lower limit (and balance) until you develop better eating habits.
8. Use different types of credit
Diversification does not only apply to investments: it can also have a positive impact on your credit score! Lenders want to know that you are able to manage different types of credit effectively, such as mortgages, lines of credit and credit cards as well as car loans.
If you believe your mortgage or car loan is sufficient to demonstrate your credit activity, you may need to consider applying for a card or line of credit to diversify your mix. You can set up one or two automatic payments on your credit card, and reimburse it each month to generate activity.
9. Limit credit requests
Recorded credit reports can drop your score, especially if several appear on your file in a short period of time. Why? Lenders may consider you to be looking for credit. To keep your score high, limit your credit requests as much as possible. If you are looking for the best rate, be aware that most lenders offer a quote or an estimate made through an unregistered credit check (and therefore does not affect your score).
A word of advice: a registered credit check can be carried out when you apply for a job, rent an apartment or sign a mobile phone contract. So be sure to monitor these activities to keep investigations to a minimum.
10. Be patient
It may take a few months before you see results, especially if you have just started building your credit. Remember that the length of your credit history is also a factor that has a major impact on your score. If you have had a credit card or loan for only a year, you may have to wait a while before you see the effect on your score.
We all, at one time or another, need to get credit; good credit habits are therefore just as important as budgetary or consumer habits. Also expect to spend time and make mistakes. Start by doing one or two steps from this list each month; you will reach the desired score before you even realize it!