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Low Credit Score? Learn How to Improve Your Credit Score Today

Low Credit Score? Learn How to Improve Your Credit Score Today
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  • Tvine Donabedian
| 28 April 2023
Reviewed, 31 August 2023
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    Credit scores are an important 3-digit number that provides insights into your financial health, such as how likely you will pay your bills on time. In Canada, credit scores range from 300 to 900. Depending on the model used, where your credit score falls can help you more easily qualify for loans, higher revolving credit limits, and even better interest rates when applying for a mortgage. 

    Credit scores help lenders assess your credit capacity and ability to take on more debt. This number is also used to predict how likely you are in the future to keep on top of payments. A good credit score is important since your credit may be checked and assessed when applying for certain jobs, renting an apartment, and getting approved for additional credit and loans. 

    The good news is that credit scores will change over time – going up or down based on your credit history, how much debt you owe, and whenever a hard check is performed on your credit bureau. If you currently have a low credit score, read on as we’ll discuss steps you can take now to improve your score.

    Key Takeaways

    • Credit scores in Canada range from 300-900, with 660-724 considered a good credit score.
    • Checking your credit report regularly will help you avoid errors in reporting and quickly identify any fraudulent activity. 
    • Paying bills on time and maintaining a credit utilization of 30% or below are two of the best ways to improve your credit score.   

    5 Simple Ways To Improve Your Credit Score Today

    Check Your Credit Report

    Today checking your credit report often has never been more accessible or easy. Most financial institutions give you free access to your credit report through their online banking portals. These financial institutions usually use Equifax or TransUnion, Canada’s two main credit bureaus. 

    These credit bureaus track your past credit history and how you have used credit and generate your credit score based on several factors. Things like your payment history, how much credit you use vs how much is available, length of credit history, and the number of inquiries in your credit file all contribute to your credit score rating. There may be a slight difference in credit scores through the two credit rating agencies; or those accessed by professionals such as brokers and lenders.  Although these scores measure the same criteria, the proportion of value they place on each measurement may vary between them.

    Reviewing your credit report frequently will help you quickly notice any errors in reporting and identify any suspicious activity, such as fraud or identity theft. If something doesn’t look right, it’s important to dispute it with the credit bureau directly; otherwise, your credit score may be negatively impacted. 

    Be Aware of Credit Utilization Rate

    Your credit utilization compares the amount of credit you use to your total credit. This figure plays a significant role in calculating your credit score. A good rule of thumb is to keep your utilization at 30% or lower to help improve and maintain a good credit score. 

    For example, if you have a credit card with a $5,000 limit, it’s best never to utilize more than $1,500 (30%). Otherwise, this could negatively impact your credit score, and lenders may view you as a higher risk even if you pay your bills in full each period. 

    If you consistently use more than 30% of your available credit, it may be time to assess your spending habits or ask for a credit limit increase. 

    Pay Your Bills on Time

    Paying your bills on time helps to establish a positive payment history. A bill paid on time is not timed from when the bill was paid but when your creditor receives the payment. Therefore, it’s a good practice to pay at least 4-5 business days before the due date and give it a few days for receipt of payment. 

    Most lenders will want to see a history of consistent on-time payments so that they know you are also likely to pay them back consistently too. Any time you miss any bill payment (even accidentally), this can hurt your credit score. This can be an oversight or mistake that can happen to the most well-intentioned people, so you should reach out to your creditor to avoid having them report to the credit bureaus. Every bill payment you make is reported to the credit bureaus, and any missed or late payments can significantly affect your credit score.

    Setting up automatic payments – even if you only set up the minimum payment instead of the full balance will ensure you never miss the due date. Electronic alerts can also help you manage your finances by alerting you when a payment date and the amount owing are coming up. Missed or late payments will hurt your credit score, so it’s important that you have a history of paying all bills on time. This is one of the most crucial scoring factors for determining your credit score. 

    Reduce Your Debt 

    Significant debt – especially high-interest debt – can negatively impact your credit score. Assessing and prioritizing paying off the most expensive balances is important. If that seems impossible, consider consolidating debt into a lower-interest loan or transferring the balances to lower-interest credit cards. Consider these solutions with an eye for keeping your utilization of each revolving credit facility to a minimum. These steps can help you pay down your debt faster, improving your credit utilization, which will help improve your credit score. 

    Be Careful with Credit Inquiries

    Credit inquiries fall into two categories: a hard hit and a soft hit. Hard hits appear on your credit report and negatively impact your credit score. Soft hits do not appear on your credit report and do not impact your credit score. 

    Hard hits include applications for credit cards, car loans, mortgages, personal loans, and some rental applications. Applying for multiple credit products simultaneously is generally not a good idea, as each inquiry will impact your credit score. Additionally, it may leave lenders wondering why you need to access so much credit quickly, which may negatively impact your ability to get approved for credit in the future. It’s important to only apply for credit when you need it and when you plan to keep it long-term.

    Soft hits include when you check your credit report, are pre-approved for a credit card or other credit products or limit increases, when employers perform a credit check, and when insurance providers may check your credit to determine your risk and offer a discount on your premiums. When your financial institutions offer a pre-approved credit product or limit, it’s generally a good idea to accept. Pre-approved limit increases do not negatively affect your credit score. They may do the opposite, improving your score as it decreases your credit utilization.

    Frequently Asked Questions

    What is a Good Credit Score?

    According to Equifax – a credit score range between 660 to 724 is considered good.

    How often should I check my Credit Score?

    At a minimum, you should check your credit score at least once a year. However, checking your credit score more often will help you identify and resolve any issues more quickly, especially potential fraudulent activity. 

    What is the average Canadian credit score?

    The average Canadian credit score is around 700. Credit scores vary and change frequently based on several factors, such as credit utilization, payment history, and overall credit history. 

    Final Thoughts

    Improving your credit score is achievable, but it will require discipline and dedication to get you where you want to be. Improving your credit score is critical as it is one of the main things lenders will look at when assessing your creditworthiness. 

    Improving your credit score will open up the potential for lower interest rates and the likelihood of being pre-approved for more credit well before a need exists. Taking small steps like paying bills on time, limiting new debts, consolidating into lower interest rate debts where possible, and keeping credit utilization at or below 30% are just a few ways to help you start building and maintaining a good credit score.