As you most likely know, your credit score is one of the most important indicators of your overall financial health. Lenders use it to determine how responsible you are when it comes to using credit.
The higher your score, the easier it will be to get approved for new loans or lines of credit. Better scores also open up the door to lower interest rates on borrowed funds.
If you are feeling discouraged with your credit score, don’t worry! There are a number of simple things that you can do to boost and rebuild your credit score. It might take months to see an increase in your credit score, but many of these steps can be done within just a few hours.
GET FAMILIAR WITH YOUR CREDIT REPORT & SCORE
A great first step to rebuilding your credit is knowing what you are realistically working with – both good and bad. This means obtaining a copy of your credit report. You can access your credit report online for free from Equifax and TransUnion. Accessing your credit report online allows you to see it right away.
- Equifax allows you to access your credit report online and updates it monthly.
- TransUnion allows you to access and download your credit report (called Consumer Disclosure) online and updates it monthly.
At Birchwood Credit, we also offer a Secure Credit Check! This allows us to safely check your credit and obtain your credit report – at zero cost to you. Once you fill out the form, one of our credit experts will review your report and set up a plan to help you rebuild your credit and achieve financial freedom.
KEEP AN EYE ON YOUR PAYMENT HISTORY
Your payment history is the number one most important factor affecting your credit score. To improve your payment history, make sure you are:
- Always making your credit card and bill payments on time
- Paying the full amount you owe (or the minimum payment, at the very least)
- Contacting your lender right away if you aren’t able to make a payment
- Creating a filing system to keep track of all monthly bills
- Setting due date alerts so you always know when a bill is coming up
- Automating bill payments from your bank account whenever possible
Another tip is to contact your financial institution and ask if they can set up electronic alerts whenever your credit card availability falls below a certain amount.
BE SMART ABOUT YOUR CREDIT UTILIZATION
Credit utilization refers to the portion of your credit limit that you are currently using. This is the second most important factor when it comes to your credit health, after payment history. Here are some ways to keep your credit utilization in check:
- Pay your credit card balances in full
- If that isn’t possible, keep your outstanding balance at 30% or less of your total credit limit
- Don’t ever go over your credit limit
Remember that borrowing more than your credit card limit can lower your credit score. If you are using a lot of your available credit, lenders will see you as a greater risk.
It’s a good idea to calculate your credit usage rate. Add up all of the limits for your credit products (credit cards, lines of credit and loans). Then, calculate how much you’re using for each. Make sure this number is 30% or lower than your total limits.
Asking for a credit limit increase is another way to improve your credit utilization ratio – but keep in mind that there may be a bigger temptation to spend more. As long as your balance doesn’t increase in tandem, this is a great way to boost your credit score.
INCREASE YOUR CREDIT HISTORY LENGTH
Transferring an old account to a new account is considered “new credit”. For example, if you transfer your balance from one card to another with a lower interest rate.
The longer you have credit accounts open and in use, the better it is for your score. Consider keeping your older accounts open, even if you no longer use them. You can even use them from time to time just to keep them active. Just make sure there are no fees for keeping older accounts open.
LIMIT YOUR NUMBER OF CHECKS AND APPLICATIONS
It’s expected that you will need to apply for credit once in a while, which means lenders will need to do a check on your credit report. It’s important to remember if there are too many checks on your credit report (especially in a short amount of time), lenders may raise a red flag. They may assume you are urgently seeking credit or are trying to live beyond your means, which would make you a bigger risk.
To limit the number of credit checks on your report, make sure you are only applying for credit when you really need it.
There are also different types of credit report checks called “hard hits” and “soft hits”:
- Hard Hits are checks that appear on your credit report and will count against your credit score. Anyone who views your credit report will be able to see these “hits” which include credit card applications, rental applications and some job applications.
- Soft Hits are checks that appear on your credit report, but only you can see them. They also don’t affect your credit score. These “hits” include when you request a copy of your own credit report and when businesses ask for your credit report to update their existing records.
CONSOLIDATE YOUR DEBTS, IF POSSIBLE
If you have a number of outstanding debts, it could be hurting your credit score. Consider consolidating your debts to work to your advantage. You can do this by taking out a debt consolidation loan from your bank or credit union and pay all of your debts off at once.
Doing this will mean you only have one payment to deal with, often with a lower interest rate. Paying down your debt can become easier in this scenario, and, in turn, help to improve your credit utilization.
Another option is to consolidate more than one credit card balance by paying them off with a balance transfer credit card. These types of cards often have a time period where you are charged 0% interest on your balance. However, make sure you are looking out for balance transfer fees, which can be costly.
TRACK YOUR CREDIT PROGRESS
There are many free credit monitoring services out there that provide an easy way to see how your credit score is changing over time. These services often give you access to your credit score and can monitor any changes in your credit report including a newly opened account or an account that’s been paid off.
Here are a couple of the most well-known ones in Canada:
These services are also handy for preventing identity theft and fraud. If you get an alert that a new credit card has been opened that wasn’t done by you, you can contact the credit card company and make a suspected fraud report.
USE DIFFERENT TYPES OF CREDIT – INCLUDING A CAR LOAN
Only having one type of credit product on your report (such as a credit card) can result in a lower credit score. Having a variety of credit products such as a credit card, line of credit and car loan may improve your credit score, but make sure you are in a position to pay back any money you borrow.
REBUILD YOUR CREDIT WITH BIRCHWOOD CREDIT
We understand you may have less-than-perfect credit for reasons beyond your control. We also believe that people deserve to get a car loan, no matter what their financial history looks like. We have the experience and resources to help with all the following types of credit situations:
- Bad credit / no credit
- First time car loan applicants
- Getting a car loan after bankruptcy
- Slow, late or missed payment history
- Consumer proposals
- New to Canada
- Low income
- Orderly Payment of Debt
- Poor credit due to unexpected events
Birchwood Credit Solutions was created to allow everyone an equal opportunity to drive a safe and reliable vehicle. Don’t let credit concerns keep you from your next vehicle – apply today!