Here are some easy things you can do to improve your credit score, regardless of your credit situation. 

1. Review Your Credit Report

When looking to improve your credit score, a good starting point is to review your credit report from Equifax or TransUnion at least once a year. Equifax Canada refers to your credit report as “credit file disclosure.” While TransUnion Canada refers to your credit report as “consumer disclosure.” You can request a free copy of your credit report online, by mail or fax, and by telephone. 

Make sure there are no errors or signs of identity theft and fraud in your credit report. If you see anything suspicious or a mistake, please contact the credit bureau immediately and provide copies of supporting documentation. 

Next, check to see if you have any unpaid balances or accounts that have gone into collections. It’s a good idea to tackle this negative information first by paying off as many old debts as possible. 

2. Monitor Your Payment History

Your payment history is the most crucial factor for your credit score because it makes up roughly 35% of your credit score calculation. 

To improve your payment history:

• Always make your payments on time
• Make at least the minimum payment if you can’t pay in full 
• Contact the lender right away if you think you’ll have trouble paying a bill
• Don’t skip a payment even if a bill is in dispute

If you ever struggle to pay on time, consider using automatic payments for your accounts or setting up alerts to remind you. 

3. Use Credit Wisely

Don’t go over your credit limit. If you have a credit card with a $5,000 limit, try not to go over that limit. Borrowing more than the authorized limit on a credit card can lower your credit score.

Keep your credit utilization rate low by using 50% or less of your available credit. Having a higher credit limit and using less of it each month is better.

For example:

• A credit card with a $5,000 limit and an average borrowing amount of $1,000 equals a credit usage rate of 20%
• A credit card with a $1,000 limit and an average borrowing amount of $800 equals a credit usage rate of 80%

Lenders see you as a greater risk if you use a lot of your available credit, even if you were to pay your balance in full by the due date.

To figure out the best way to use your available credit, calculate your credit usage rate. You can do this by adding up the credit limits for all your credit products.

This includes:

• Credit cards
• Lines of credit
• Loans

For example, if you have a credit card with a $5,000 limit and a line of credit with a $10,000 limit, your available credit is $15,000.

Once you know how much credit you have available, calculate how much you are using. Try to use 50% or less of your available credit.

For example, if your available credit is $15,000, try not to borrow more than $7,500 at a time, which is 50% of $15,000.

4. Increase The Length Of Your Credit History

The longer you have a credit account open and in use, the better it is for your score. In general, lenders want to see established lines of credit. Your credit score may be lower if you have relatively new credit accounts.

If you transfer an older account to a new account, the new account is considered new credit.

For example, some credit card offers come with a low introductory interest rate for balance transfers. This means you can transfer your current balance to this new product. The new product is considered new credit.

Consider keeping an older account open even if you don’t need it. Use it to keep it active. Check your credit agreement to find out if there is a fee.

Overall, lenders like to see that you’ve been able to handle credit accounts over a period of time responsibility. About 15% of the credit score calculations come from looking at your credit history. 

5. Limit Your Number Of Credit Applications Or Credit Checks

It’s normal to apply for credit occasionally. When lenders ask a credit bureau for your credit report, it’s recorded as an inquiry. Inquiries are also known as credit checks. It makes up around 10% of your credit score calculation. 

If there are too many credit checks in your credit report, lenders may think that you’re:

• Urgently seeking credit
• Trying to live beyond your means

How to control the number of credit checks

To control the number of credit checks in your report:

• Limit the number of times you apply for credit
• Get your quotes from different lenders within a two-week period when shopping around for an auto or mortgage loan. Your inquiries will be combined and treated as a single inquiry for your credit score.
• Apply for credit only when you need it

“Hard hits” versus “soft hits”

“Hard hits” are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.

Examples of hard hits include:

• An application for a new loan or credit card 
• Some rental applications
• Some employment applications

“Soft hits” are credit checks that appear in your credit report, but only you can see them. These credit checks don’t affect your credit score in any way.

Examples of soft hits include:

• Requesting your credit report
• Businesses asking for your credit report to update their records about an existing account you have with them 

6. Use Different Types Of Credit

Your score may be lower if you only have one type of credit product, such as a credit card.

It’s better to have a mix of different types of credit, such as revolving and installment credits. A revolving credit account lets you repeatedly borrow against and pay off a credit line without applying for a new loan. In contrast, an installment credit is a loan on which you have to make regular payments.  

Examples of revolving credit include the following:

• A credit card
• A personal line of credit
• A home equity line of credit (HELOC)

Examples of installment credit include the following:

• Student loan
• Auto loan
• Mortgage

A mix of credit products may improve your credit score. Make sure you can pay back any money you borrow. Otherwise, you could hurt your score by taking on too much debt.

If you want a free consultation to help improve your credit score or if you have any questions, feel free to reach me at 604-355-3592 or email me at info@torresmortgages.ca