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    Improve Your Credit Score

    Helen Ramlal

    Everyone wants a higher credit score.  Why?  You are more readily approved for credit, you receive more favourable rates and, generally-speaking, life becomes much easier to navigate. What is a credit score? A credit score is a calculation that considers a wide range of financial variables in your life and then reduces that information down to one number. Lending institutions depend on these credit scores to determine if you are/are not a good credit risk. Scores range from 300 to 900. The higher the number, the better. A score of 725 is considered to be very good. The credit score calculation does not consider factors such as race, gender, religion, marital status, income level, nationality, place of residence or employment history. Can you impact your score?  You definitely can—but only through consistently good behaviour going forward in the following five categories. Your credit score is made up of the following five weighted items:

    1. Past payment performance---35%.  It’s critical to pay your bills on time.  Do not wait until the due date---by the time the payment is processed, it will be considered late.
    2. Credit utilization---30%.  Banks may lend money to you but they would prefer that you not use all of it.  Keep your balances to less than 30% of your maximum credit limit, otherwise your credit score will take a hit.
    3. Credit history---15%.  The longer you have had accounts open, the better.  If you have only a short history, that’s ok as long as you have limited credit and you’re paying on time.
    4. Types of credit in use---10%.    Bank credit is more favourable than finance companies.  Too many finance companies (e.g. buy now, pay later) may make you appear as a weak borrower and therefore, a higher risk.
    5. New credit applications/inquiries on your credit report---10%.  Applying for multiple credit cards after you have incurred high balances on other cards can be detrimental to your score.  Multiple inquiries for a mortgage or car loan though, within a 14 day period, count only as one inquiry.

    Thoughts and suggestions:

    1. The past can’t be changed but the future can be better, without question.
    2. Live within your means with a good spending plan.
    3. Pay down your debt as much as possible to improve your credit score.
    4. Keep things simple.  Fewer cards and lower balances are better.
    5. Time will heal most things---this is a marathon, not a sprint.
    6. There is no magic fix and no credit repair.
    7. Check your credit report and credit score each year to ensure there are no mistakes.
    8. If there are mistakes, fix them immediately for free---on your own---by contacting Equifax and TransUnion.

    Bottom line:  Good habits going forward will guarantee that your credit score will improve over time and perhaps, sooner than you think, you will find it in more favourable territory. For more detailed information about how to get your credit report, understand your credit rating and improve your credit score with Credit Canada click here.

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