Tips for Fixing Your Credit Score

In this article:

A Comprehensive Guide

Your credit score is like a financial report card that lenders use to assess your reliability as a borrower. A good credit score can open doors to competitive interest rates for mortgages, car loans, and other credit, making it a critical component of your financial health. Maintaining a strong credit score is not just about gaining access to better loans; it’s about securing your financial future.

Here are some strategies, both standard and lesser-known, to help you improve your credit score.

1. Understand your credit report: One of the first steps to improving your credit score is to get familiar with your credit report. This document contains the details of your credit history, and reviewing it regularly is essential. Canadians can obtain a free copy of their credit report anytime upon request from either Equifax or TransUnion, not just annually. Inspect your report for any inaccuracies or errors, such as payments incorrectly marked as late or fraudulent accounts, and dispute any discrepancies you find. Both Equifax and TransUnion in Canada use a scale from 300 to 900, with a higher score indicating better creditworthiness.

2. Pay bills on time: Timely payment of your bills can have a significant positive impact on your credit score. Late payments, even if only a few days late, can negatively affect your score. To avoid this, consider setting up automatic payments for your regular bills, or set reminders to ensure you pay on time. Consistency in paying bills on time demonstrates your reliability as a borrower.

3. Reduce your debt: Reducing the amount you owe is easier said than done, but it’s effective in improving your credit score. Try to pay down your debts, especially high-interest loan or credit card debts. Keep your credit card balances low. Ideally, your balance should be less than 30% of your credit limit on each card. Also, try not to max out any of your credit cards, as this can appear risky to lenders.

4. Avoid opening unnecessary credit accounts: Each time you apply for a new line of credit, a hard inquiry is made, which can lower your score temporarily. Opening several accounts in a short period can make you look like a higher risk. Therefore, only apply for new credit accounts when absolutely necessary and manage your existing credit prudently.

5. Maintain a mix of credit types: Credit scores benefit from having a diverse mix of credit accounts, such as credit cards, personal loans, auto loans, and mortgages. This mix shows that you can handle different types of credit responsibly. However, it’s crucial not to close old accounts without good reason as they help in building a longer credit history, which can positively affect your score.

6. Be patient: Improving your credit score is a marathon, not a sprint. It takes time to see the effects of positive changes, so don’t be discouraged if your score doesn’t improve overnight. Continue practicing good credit habits, and over time, your credit score will reflect your efforts.

The following are a few lesser-known tactics to help build and nurture good credit.

1. Increase credit limits: If you can’t immediately pay down balances, asking for a higher credit limit can instantly lower your credit utilization ratio. However, this only works if you do not increase your spending.

2. Become an authorized user: Being added as an authorized user on someone else’s credit card account can help, especially if the primary holder has a good payment history and long credit tenure. This can add their account’s history to your credit report.

3. Rapid rescoring: If you’re applying for a mortgage and your credit report contains errors, you can ask for a rapid rescore through your lender. This is a faster-than-usual method to update and correct your credit score within days rather than waiting for weeks.

4. Balance reporting dates: Pay attention to when your creditor reports your balance to the credit bureau and try to pay down your balance before this date. Even if you pay off your balances every month, if your payment is after the reporting date, your reported balance could still be high.

5. Use a small-limit credit card: For those with damaged credit or thin files, secured credit cards or small-limit cards can help when used wisely. Regular, on-time payments of these cards can build your score.

Protect Your Financial Ecosystem

Specific provincial laws exist in Canada that affect how credit information can be used and what rights consumers have regarding their credit information. By understanding your credit report, paying bills on time, reducing your debt, wisely managing credit accounts, maintaining a diverse credit mix, and being patient, you can significantly improve your credit score. Each step you take not only boosts your score but also reinforces your overall financial health.

Take these proactive steps today and set yourself on the path to a more secure financial future.

Disclaimer: The credit advice provided by Luminus Financial is for informational purposes only and should not be considered as financial advice. We recommend speaking directly with your financial representative to discuss your specific situation and obtain personalized guidance.

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