Ways to Improve Your Credit Score
By Piotr Golinski
While still a fairly new system (ask your parents if they ever had to worry about their credit score when renting an apartment) credit has become one of the most important factors in providing a universal and impartial tool for evaluating consumer credit risk. While it doesn’t always seem fair or even intuitive, the reality is that for the objective landlord or bank representative who doesn’t know you, they can’t simply take your word for being “honest and trustworthy”. The credit system is one of the most transparent ways for someone to see your financial habits in order to deduce if you are the type of person to make payments on time and regularly. It doesn’t just help that you have a great paying job if it turns out that most of that money gets spent on shopping or vacations etc.
However, for those who are financially stable, make good decisions and keep up with payments, your credit score may still be low due to small easily fixed things; this is like getting a poor grade on a paper simply due to spelling mistakes. The content is fantastic, you’re just getting penalized for grammar. If that’s your case, read on to find out some simple things you can do to improve your credit and make getting a mortgage or loan that much easier in the future.
Set up a Payment Schedule
Payment history is one of the most important factors that affect your credit. Make sure that you are making at least minimum payments on time and contact the lender if you are having any issues with this at all. Don’t skip payments even if a bill is in dispute; you can usually get your money back but you can’t remove or change reports to your credit history of missed payments.
Know Your Limits
To borrow the the phrase from OLG Lottery advertisements, know your limits and play within them. This is generally good advice for all manner of things, but especially while using a credit. While making use of it is helpful to build credit history, it’s important not to use all the credit that’s available to you. Lenders want to see that you aren’t always near your limit because it means that you keep your spending low and are more likely to make payments on time. Therefore give yourself plenty of headroom and try to use no more than 35% of your limit. By doing this consistently, you are also more likely to be approved for an increased credit limit and therefore drive your usage even lower or allow you to use a little more than you did before (35% of $7000 is more than 35% of $5000).
Give It Time
In order to build a credit history, you need time to pass with a credit account open. There’s no way to expedite this process so the best way to do this is to open that credit account now and get started; you can’t build a history from nothing! Use the credit sparingly if you are worried about making payments and these small amounts over time will begin to create a report of consistent credit that’s been paid off making you look reliable.
Hard Vs Soft Checks
Become familiar with the difference between a soft credit cheque and a hard credit check. Soft checks include requesting your own credit report or business asking for your report to update their records and have no effect on your score. Hard checks can occur for an application for a new credit card, some rental applications, and some employment applications. These do affect your score and are recorded each time. Try to limit hard checks as too many checks can seem as if you are urgently trying to get more credit and therefore living beyond your means.
Have Different Kinds of Credit
Having different kinds of credit (ie. Credit card, personal line of credit, car loan) and consistently making appropriate payments to these on time improves your score because it shows you can handle multiple obligations and are still living within your means. It’s essentially more impressive that you are able to be responsible for more credit and are not abusing it. Just be very diligent about making payments as owing debt to various lenders can hurt you more in the long run.
Credit can seem unnecessary, confusing and sometimes backwards, but there are resources available to those that wish to understand where they are and how they can improve their own credit. While you can go back and change your credit history, you can make it better and over time make a consistent positive history overshadow the possible negative start. It’s just about being aware of your own habits and knowing what things you do or don’t do actually affect your credit. By keeping some of these things in mind, applying for a mortgage when you find that dream house, or getting approved by a landlord will be that much easier. Don’t wait to fix it when it becomes a problem, but try to avoid it becoming a problem in the first place.