Credit / First Time Home Buyer / Pre-Approvals / Purchase / Qualifying / Rates & Terms / Refinance / Rental Properties

Improve Your Credit in 10 Steps

Your credit score is becoming more of an asset today than it has ever been before. A good credit score impacts many aspects of your life including your ability to borrow money. Lenders are increasing minimum credit score requirements in order to qualify for a mortgage and even landlords are ordering credit reports before renting to a tenant. A great credit score can either open the door to your new home or close it until your credit rating improves!

Credit scores are not an exact science so consider these tips as only a guideline to follow as this information does not replace a credit consultation with a specialist.

Step 1.  Have Credit

Having no credit history or having a history of credit issues are both not good to a lender. In order to generate a credit score you need to have credit facilities that actually report to the credit reporting agencies such as Equifax and Transunion. Some types of borrowings that will be reflected on your credit report are cell phone accounts, credit cards, car loans, student loans, lines of credit and home equity lines of credit. Keep in mind some creditors such as utility companies or maintenance enforcement will not report to your credit report unless you default and they are sent for collection.

Step 2.  Correct Inaccuracies

Now that you know your repayment habits are being reported, you need to make sure they are accurate. When it comes time to apply for a mortgage and you have been told there is a problem with your credit report, it can take a considerable amount of time to have the necessary corrections made to your credit report which you probably don’t have if you have a pending offer in on a new home. Good idea to get ahead of the game by consistently monitoring the accuracy of your credit report.

Step 3.  Don’t close unused credit cards

If the card has a low interest rate, use it periodically and pay off the balance quickly as this can keep your credit active and improve a low credit score. There’s a healthy balance between having adequate open credit to establish a credit repayment pattern and having too many open credit facilities.

Step 4.  Keep your paperwork

Get it in writing that the account has a zero balance before closing it and keep that confirmation somewhere safe as you may need to provide it to a lender in the future if the lender made an error when reporting the closure. I have seen a $22 interest charge ruin a credit score because the borrower was unaware of the balance owing after he “thought” he had paid it off in full!

Step 5.  Spread out your spending

It is better to have 2 cards at utilized to 50% of the available limit than to have 1 card maxed out, so spread out your spending. “Utilization” which is how much you owe compared to what your available limit is, is one of the determining factors of your credit score. Unused credit looks good!

Step 6.  Never exceed your credit limit

Even $1 over limit can lower your credit score significantly. I always get asked if being over limit for just one day affects your credit and I answer with “it depends”. Always ensure your balance is below your limit before your interest calculation date. Your interest calculation date can differ from your payment date; check your statement to confirm. Makes sense to only utilize your revolving credit to 75% of the available limit, as that way you will never exceed the limit.

Step 7.  Speak to professionals with shared goals

There is a different credit plan for someone eliminating debt than there is for someone applying for a mortgage. Do your research before making any decisions about your credit and make sure you’re aligning yourself with someone who understands your credit goals.

Step 8.  Pay your bills on time

I know you hear it all the time, but readers of your credit report can actually see how many times and how many days late you have been with all of your debts. Late payments lower your score and show poor repayment habits when it comes time to apply for more credit. Lenders do understand if you miss a payment once or twice in your life but make it up immediately. Most often we are able to show one or two late payments was an isolated incident and is not indicative of your overall credit habits.

Step 9.  Mitigate the bad with the good

If you do have some “bruised credit”, that’s okay, however you need to show your poor repayment habits are in the past and you are now paying on time and have been for a least the last 12 months. Make sure you have established new credit that will show positive repayment habits.

Step 10.  Avoid Excessive Credit Seeking

Multiple inquiries from different types of companies can reduce your credit score. If you are looking for credit, try to keep the companies pulling your credit report to a minimum to keep your credit score in great shape.

I hope you found these tips helpful in bringing you closer to attaining your top credit score. There are many other things you can do to maintain a high credit score and these are just 10 of the many. If you would like to pull your own credit report, you can visit Equifax.ca to find out what your score is right now.

If you have any mortgage or general credit questions, contact the MortgageGirl at 780-433-8412 or info@mortgagegirl.ca. Stay in the loop by following us on Twitter @mortgagegirlca.

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