How to Increase Your Credit Score

Your credit score will play a large role in determining what mortgage you can apply for and at what rate. If your credit score is currently lower than you would like, here are some great ways to improve it.

Utilization refers to how your credit is employed. If your credit balance is consistently pushed to the limit, your credit score will begin to decline. For instance, if a borrower has a $1,000 credit limit and consistently uses 80% ($800) of their credit, this will negatively affect their credit score. It does not matter how high the credit limit is, the impact to your credit score will be the same. Typically a good range is around 30% use of a credit limit.

Pay down Debt: 
Paying down debt can significantly bolster your credit score. If you have debt with multiple creditors, inquire about a debt consolidation loan. Not only will this loan simplify life, as there would be only one payment to remember each month, debt consolidation can let borrowers pay back debt at a lower interest rate.

Credit Limit Increase:
If you are consistently hitting your credit limit, this will negatively affect your credit score. Consider asking your credit provider for a credit increase as this will help decrease your credit utilization. It should be noted, credit card issuers will typically only grant this if you have a good record of credit use. If you have missed payments, you may not be able to get an increase. Also, the intention is not to increase spending.

Get a New Credit Card: 
It may not be the wisest decision if you have significant credit card debt. But, if you are in a situation in which you have to raise your credit score quickly, this may be one of the only options. Having a new credit card could help lower your credit score utilization. It should be stressed that generally opening multiple accounts too quickly can be taken as a sign that the individual is experiencing financial difficulties or are taking on more debt than they are able to handle, and thereby negatively affecting their credit rating.

Payment history is one of the most important aspects of an individual's credit score.

A couple of points on the rating system:

  • Late and missed payments will lower your credit score.
  • Rating agencies use credit information on over 24 million Canadians. They track all sorts of debt and how, on average, the population pays it back. This includes credit cards, lines of credit, banks loans, car loans, and only recently mortgages.
  • Scores typically range from 400 to 900, and good scores are typically 600 and higher; anything over 750 is considered excellent.

If borrowers continually make payments in a timely manner their credit score will increase. Month-to-month payments are one of the most important pieces a lender will look at.

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Roger Townsend

Roger Townsend

Broker
CENTURY 21 People's Choice Realty Inc., Brokerage*
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