Tips to Improve Credit Scores

Tweak that credit score…

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The better your credit rating, the easier it is to obtain financing.  You’ll have access to lower interest rates and even pay less for car and home insurance since more and more insurance companies are using credit scores as an indicator of risk. So how can you improve your credit rating or score?

1) Pay bills on time.

While utility bill payments (e.g., electricity, cable) are not recorded in your credit report, cell phone companies may report late payments to credit bureaus, which could lower your credit rating. If you can’t pay your bills in full, pay at least the minimum amount required by the due date.

2) Show that you can manage both revolving credit and installment loans.

There are two major types of credit: revolving (e.g., credit cards) and installment (e.g., personal loans, car loans, mortgages). One of the fastest ways to improve your credit scores is to demonstrate responsibility with both. If you’ve never held an installment loan, consider taking out a small personal loan that you can pay back easily. Likewise, it’s important to establish a history of using a credit card and paying off the monthly balances. Even if you don’t qualify for a regular credit card, you may be able to obtain a card secured against a deposit such as a GIC; in this case, your credit limit will be equal to the deposit amount.  It’s important to understand that lenders see a lack of credit history) as a greater risk than a history of responsible credit management.

3) Keep your credit card balances low. Lenders like to see a gap between your credit card balance and you credit limit – typically the balance shouldn’t exceed 30% of the limit. If you regularly use more than half the limit on your credit card, consider using other cards or reducing the amount you spend using credit cards. Whatever you do, don’t exceed your credit limit.

4) Limit the number of credit applications you make. If too many potential lenders start enquiring about your credit score, then this can set off alarm bells because credit bureaus may think that you’re searching for lots of new credit. Timing is essential here. If you’re just shopping around for a single loan rather than looking for multiple credit lines, then it’s important that the enquiries be made within a short time period. This will help the credit bureaus figure out that the multiple enquiries really relate to only one potential loan.

5) Get that old card out of the drawer. Another reason not to open a bunch of new accounts at once is that your credit score also depends on average account age:  lower average age leads to a lower credit score. Likewise, if you stop using your oldest cards, you run the risk that those accounts will be closed or that the issuer will stop sending updates on the accounts to the credit bureaus. Even if those cards appear in your credit report, they might not be given as much weight as newer, more active accounts. So remember to use your older credit cards every so often – and don’t forget to pay the balance off!

Basically, to improve your score, you need to establish a credit history by having a record of owing money and paying it back on time, and keep your balances low. Limit your credit lines – it simplifies debt management and makes it easier to obtain credit when you actually need it.