Want to improve your credit score, but don’t know where to start? You’re not alone. Understanding how to build good credit is a mystery to more than 35% of Canadians. If you fall into this category, don’t worry. It’s actually easier to build up good credit than you might think.
Here are 10 of our favourite tactics for building credit:
1. Pay your bills on time
This is tip number one for a reason. Lenders put a lot of emphasis on your payment history because it’s an easy way to tell how well you can manage your debts. Not only will missed payments lower your credit score, but the infraction can stay on your profile for up to seven years. Set a reminder and pay your bills when they are due.
2. Carry a low balance
Don’t treat your credit card limit like a spending goal. Even if you have a $7,500 limit on your card, you should try to stay as close to $0 owing as you can. Maintaining a high balance is a sign to lenders that you don’t have enough income to pay off your current debts. Work on paying off high balances so you can lower your credit utilization.
3. Pay balances in-full
There’s a common misconception that carrying a balance on your credit card helps improve your credit score. Unfortunately, the only thing carrying a high balance does is cost you more in interest payments. Try to pay pay off your balance in-full each month. And if that’s not in the budget, at least make the minimum payment so you’re not getting charged higher interest.
4. Keep old accounts open
The first credit card you signed up for is more than just a symbol of your transition into adulthood — it’s also the beginning of your life as a borrower. A long credit history shows that you’re able to manage debts over the long term. Avoid closing those old accounts even if you’ve paid off the debt or no longer use the card.
5. Use more credit
Yes, you read that correctly. An active credit account can help build your credit score as long as it’s being used responsibly. Don’t be afraid to make payments with your credit card, but only spend as much as you can afford to pay off each month. You have to use credit to build credit — as long as your credit use doesn’t get you further into debt.
6. Raise your limit
Again, this might sound counterintuitive, but raising your borrowing limit can actually be a boon for your credit score. Credit card companies use limit increases as a reward for good financial behaviour. Increasing your limit but sticking to the debt management tips above (paying balances on time and in full), will lower your credit utilization and lead to a higher score.
7. Save up to pay down
Making a concerted effort to pay off your existing debts is an effective way to build a good credit standing. Draw up a new monthly budget and make debt repayment a priority. Find ways to save on essentials, sell some belongings or get a second job to help pay back money you’ve borrowed. This kind of behaviour shows lenders that you’re serious about settling up.
8. Check your credit report
How can you build your credit if you don’t know where the issues are? Even though it’s a good idea to get a copy of your report from each bureau once a year, the majority of Canadians have never checked their credit report. Get started by reading our in-depth blog post about how to check your credit score.
9. Dispute errors
Credit report errors are more common and easier to fix than you might think. If you notice any inaccurate information on your credit report — like a misspelled name or an incorrect address — get in touch with the credit bureau ASAP. You could be getting dinged for someone else’s bad credit. Follow our handy checklist to find out how to dispute a credit report error.
10. Get a car loan
A car loan is a great way to build your credit because it’s a form of instalment financing. Your monthly payments are always the same, which makes it easy to budget, and you can’t make any additional purchases with the money you’ve borrowed. Keeping up with monthly payments will help you establish yourself as a responsible borrower.
Get in touch with Birchwood Credit Solutions to find out how easy car financing can be.