If you’ve recently applied for credit, the lender most likely asked permission to obtain your credit report and credit score. This is standard practice. But as it was for me the first time I went to buy a house, borrowers can be surprised with what their credit score is and how bad spending habits have affected it.
It’s important to first understand what a credit score is. It is a number in a range of 300-900. It determines how risky of a person you are to lend money to. The higher the number, the less risky you are. Generally speaking, a score of more than 700 is considered good. If it’s more than 750 your credit score is better than the majority of Canadians.
Your credit report is where all the details of your financial history going back seven years are listed. This will include any debt you are currently in and all the credit that is already available to you. This can also show how many times you have applied for credit in the past.
Having a good score is important, because lenders will offer loans at a lower rate. According to Canada.ca your payment history is the most important factor for your credit score. If you are unhappy with your score here are some easy ways to improve it.
Start making payments on time
The number one way to improve your score is to pay all your bills on time. This includes your rent and utility bills.
Don’t go into arrears
If you can’t pay the full balance on your credit card, make sure you pay the minimum to keep your credit in good standing.
Don’t apply for unnecessary credit cards and loans
If you do, you can been seen as a risk to lend to by creditors.
Don’t have too many credit cards or loans
If you’ve already have a credit card or line of credit don’t carry a balance of more than 75% of available limit.
Keep in touch with your lender
If you think you’ll have trouble paying a bill, get in touch with your lender. If it’s a utility company, see if they allow you to pay next month, by incurring a small fee.
Don’t skip a payment
Even if your bill is in dispute, pay it if you can. This often happens between landlord and tenants. You still have to pay your rent, even if you have a grievance with you landlord.
Build your credit history
According to Canada.ca, the longer you have a credit account open and in use, the better it is for your score.
Don’t take too many hard hits
A hard hit is when a check appears on your credit report. It also counts towards you credit score. This means that anyone who views your credit report will see these. This includes an application for a credit card.
Soft hits are checks that appear on your credit report but only you can see them. These credit checks don’t affect your credit score in any way. You can request your own credit report with no issues.
Here is what a bad credit score can affect:
- Your ability to get a mortgage
- Your ability to get the best available rate
- A job offer can be denied
- Application for a rental can be denied
- You may be unable to rent a car
I recommend getting your credit score once per year. This helps you address any errors that might be on your report, as they do happen, and proactively improve your score if you need to. Also, look for errors like old information, information not related to you, and missing updated information that could help your score.
Always knowing where you stand financially will help you better prepare for big purchases (like buying a home) and avoid any last minute delays due to errors on your credit report. Also, unlike how I felt 10 years ago, you won’t be shocked when you realize you score is not as good as you thought it would be.