Understanding how to leverage credit and use it to your advantage is key to maintaining and growing a healthy financial life. One of the most important aspects of the credit landscape is your credit score. Using a credit score guide will help you learn the intricacies of what your credit score is and how it affects your ability to get loans or lines of credit.
A low credit score can make it extremely difficult to get approved for a mortgage, a car loan or even to rent a home. On the other hand, a positive (high) credit score will open doors for you to better interest rates and easier access to credit.
What If You Have a Low Credit Score?
Low credit scores are the result of many different factors. Late bills, no credit history and debts that have gone to collection agencies all contribute to a less-than-stellar credit rating. This may seem like bad news to some but the good news is your credit rating isnít fixed. It grows and changes with you.††
One of the best parts about your credit score is that it can change over time. You canít erase the past but you can change your behaviour and begin building a better credit score today. How do you do that?
5 Steps to a Higher Credit Score
1. † † Pay all of your bills on time.
A credit score is how lenders and banks gauge your level of trustworthiness when it comes to financial matters. Every time you donít pay a bill by its due date, you are giving creditors and other agencies more and more reasons to distrust you and your ability to pay them back. Phone, internet, subscription services, utilitiesÖ any recurring bill you have, make sure to pay it on time.
2. † † Use a prepaid credit card or a debit card for all of your purchases.
Visa prepaid credit cards or debit cards, if used properly, will stop you from overspending on credit cards. Overspending leads to late payments, which leads to more negative reports at the credit bureau. It is a great budgeting tool that can help you get your spending habits in order as you build your credit score.
3. † † Report your rent to a credit agency.
For the average person, rent is the largest bill they pay each month and the vast majority of people pay it on time, every month. Unfortunately, rent does not count towards your credit score. However, in recent years, services have begun to offer landlords and renters the ability to report their rent as a way to boost their credit rating. By signing up with a service like landlordcreditbureau.ca, your rent payments will be reported to Equifax, where it is added to your consumer credit report. As long as you pay your rent on time, this will help you raise your credit score! Make sure to use your largest and most consistent bill as a way to raise your credit score with a rent reporting service.
4. † † Resolve any unpaid debts or collections.
Making up for past mistakes wonít erase the past but it will show that you are making better choices. Pay off any overdue accounts, unpaid bills and resolve any debt collections under your name to raise your credit score.
5. † † Pay down your credit card balances each month.
Holding balances over on your credit cards not only costs you money in interest payments, but it also negatively affects your credit score. Work to pay down your balances to zero every month. If this isnít possible, keep your balances no higher than 30% of your credit limit. How you use your credit is the second most important factor, after bill payments, when it comes to determining your credit rating. Keep your credit utilization below 30% of your limit for best results.
Start Raising Your Credit Score Today
Whether you have a bad credit score that you want to raise or have an average or good score that you want to improve, these tips will help you achieve your credit score goals. Get started and improve your credit score today!