I know my credit score is bad. I’ve nearly finished paying everything off, now what steps can I take to make it better?
In Canada, credit scores range from 300 (beginner) up to 900 points (the best score). A credit report contains information on all of your credit accounts submitted to the credit bureaus including balances, limits, and payment history. Credit scores are used by lenders, insurers, landlords, employers and utility companies to assess credit worthiness. The score ranks you as follows:
- 750 and up: very good – you will get the best interest rates on loans
- 710-750; good – you will qualify for competitive offers
- 650-710: fair – approval likely but not at the best rates
- 580-650; poor – qualify for credit at subpar rates and terms
- 580 and below: very poor – frequent denial and high rates
Before taking steps to improve your credit score, it is important to know where you stand now. You can get free credit reports once per year from Equifax and TransUnion. To be free, the request must be made by mail, fax, telephone or in person.
To improve your credit score, you can implement the following steps:
1. Use a credit card
You don't have to carry a balance, but you do need to use it. Carrying a card with you that never gets used will not help your rating.
2. Pay all bills on time
A good record of on-time payments will help boost your credit score. If you have trouble paying in a particular month, it is better to contact the lender for alternate arrangements rather than risk being sent to collections.
3. Balance the limit
Balances above 50% of the credit limits will harm your credit. It is best to aim to keep your account balances below 75% of your available credit. Lenders like to see a big gap between what is being used versus what is available.
4. Keep old cards
Having a longer history on your accounts earns you more points, so avoid closing your accounts. A good credit history is built over time.
5. Fix errors
Frequently, inaccuracies on your report are a major cause of points lost. Errors include delinquent accounts listed that do not actually belong to you (either from identity theft or just by mistake) and late payments that were not really late. Simple things such as mistakes even in address, SIN and name spelling can also cause grief.It is critical that you pull your report as least once every year and contact the credit bureaus if errors need to be fixed.
6. Limit number of inquiries
Too many inquiries into your credit rating in a short period of time may indicate financial difficulties. If you are looking for a new mortgage or car loan, rather than applying in several places, you are better to print your own credit record and ask for pre-financing based on your provided report. That way, only the final company that you decide to work with will need to actually access your credit record.
Understanding your credit score, and taking steps to improve it, can help you put the past behind you and look forward to a better financial future.Top of page