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How to Improve your Credit Score in Five Simple Steps

Your credit score is a three-digit number which is used to inform a future lender on how good of a payer you are. Your credit score determines your financial standing and the likelihood (and sometimes the amount) of money which you could borrow from a lender. Whether you are buying a home or a vehicle, having a great credit score is of paramount importance as it can save you lots of dollars spent on interest!

Now, if you are not there yet – do not worry. There are simple actionable steps which you can take to improve your credit situation. In this article, we will share with you five simple steps to help improve your credit score and overall financial standing.

  1. Be aware of your current situation

In order for you to create a clear and effective plan that will take you to where you want to be, you need to take the time and better understand where you are currently at when it comes to your credit. The best thing you can do is get a free copy of your credit report. There are many softwares online which show you your credit score and take you through it step-by-step so that you understand what is affecting it positively/negatively. It is very important to be cautious with the website you use as you are providing personal information. Here is an accurate + reliable resource which we recommend:

https://www.consumer.equifax.ca/personal/

  1. Pay your bills on time

The first thing you need to do is make sure you know when the due dates for your bills are. Paying your bills on time shows that you are a responsible and trust-worthy payer. The less overdue payments you have made, the more likely it is that a lender will be willing to lend you their money. Set reminders on your phone at least two days before the due date of your bill so that you don’t forget to pay it.

A note on automatic payments:

Many experts encourage consumers to set up automatic payments as a way to avoid making late payments. In theory, this is a great solution – it’s simple, easy and often very effective. However, we would encourage you to approach this method with caution, especially if the amount of money in your bank account fluctuates significantly. What we mean by this is that if your phone bill costs $150 but there are times of the month where your bank account has less than that amount, you need to make sure you set up your automatic payment at such time that there will be enough money in your bank account to make the payment. Why is that important? Because, if you don’t have enough money, the payment will bounce back and this will affect your credit negatively.

  1. Utilize your credit more

Obviously, responsibility here is the key. Use your credit as much as you can but make sure you are only spending what you have. For example, using your credit cards more and paying them in full at the end of the month shows that you are responsible and can be trusted with borrowing money. Another great way to strengthen your credit is through an automotive loan – even a smaller amount (like $10,000) has the ability to boost your credit score significantly, given that you make all your payments on time. We recommend downloading your banking app so that you can easily check the status of your debit and credit accounts.

  1. Keep your old credit accounts open

Lenders like to see that you’ve had a long credit history. If you have any old but unused credit cards, it is a good idea to keep them open (unless they are costing you too much money in annual fees) as this improves your credit score.

By the same token, avoid opening unnecessary credit accounts. This creates too many inquiries on your credit bureau and it affects your credit score negatively.

  1. Increase your credit limit

If your bank offers you an increase on your credit limit, take it! You don’t have to spend the extra money every month (especially if you don’t have it) but believe it or not – it really enhances your financing standing. When you’ve been trusted with borrowing more money and you show that you are responsible with how you use them, the lenders will feel more confident in lending you money AND the terms and conditions will be more favorable for you (i.e. lower interest rate, longer term, etc.).

We hope this information will help set you up for success. If you are looking to finance a vehicle but are concerned about your credit, please reach out to our Finance Managers at (613) 260-0373 for help!

Oct 22nd, 2019