7 Tips For Improving Your Credit Score
Having a good credit score can be helpful as we journey through life. Many people that we meet are proud of their credit rating and are concerned that they will lose it, or damage it, if they choose to restructure their finances by filing a Consumer Proposal or getting Bankruptcy protection.
The truth is, credit scores are changing all the time depending on a variety of factors. If you are doing the right things, then before you know it, your credit score will be on the way up. In this article we discuss seven tips for improving your credit score.
How Your Credit Score Impacts Your Life
In general, your credit score is an indication to future lenders of the likelihood that you will fall behind or miss payments. The lower your credit rating the higher the possibility exists of not being able to pay your bills on time. The higher your credit rating indicates that you are a better credit risk.
This can roll through to your day to day living in a variety of ways such as:
- Qualifying for a mortgage or loan
- The interest rate that you are charged on a line of credit or vehicle loan; the worse your credit rating is the higher the interest rate you are charged
- Obtaining a rental apartment
- Obtaining a credit card
The Federal Government of Canada has put powerful laws in place which allows people to get relief from their debts by filing a Consumer Proposal or a Bankruptcy filing when their debt load becomes too much to handle.
In both cases, you received immediate protection from the creditors who are required to stop collecting. Even CRA stops collecting for income tax debt.
If you find yourself in this situation your credit score will be impacted. A Consumer Proposal will have a slightly less negative impact than a Bankruptcy.
Financial Counselling
There are two mandatory financial counseling sessions that are required to be completed before you can finish a Consumer Proposal or Bankruptcy. As part of these financial counselings we discuss your future credit score and subsequent credit rating that will be reported by credit reporting agencies.
In Canada, there are two main reporting agencies: Equifax and TransUnion. You can request a credit report by going to their website.
Improving Your Score
Here are some things to consider in order to improve your credit score in the future:
- Try not to borrow to the maximum amount of your approved credit. In fact, make it a goal to stay below 50% of approved credit.
- Keep in mind that mortgage debt is sometimes not used in your credit score. If all you had was a mortgage and you had no other credit product, you may have a non existent credit score. This means that even though you have a good job you may have problems getting a loan. It may be worthwhile in this setting to get a credit card in your name and use it to buy groceries or gas. This would help build up your credit score.
- Make your minimum payments. On everything. No matter what. This is a must if you don’t want your credit score to go down.
- Check your score on the credit reporting agencies if you are concerned about it. Sometimes the two different agencies have different or incorrect information. If that is the case you can ask them to look into it and correct anything that is wrong.
- Pay your utility bills on time. When push comes to shove and you don’t have enough money to pay your debts, we feel that your housing and utilities are the top bills to pay. In any event, paying your utility bills on time can be helpful. Don’t let them sit about for a couple of months.
- Be careful who you borrow from. Try to avoid creditors that have super high interest rates. These organizations may not be as careful in reporting the correct information to credit reporting agencies as others might be.
- Only apply for the credit that you need. Each time you apply for fresh credit a “hard inquiry” is made to the credit bureaus and this can negatively impact your score. We can recall one story where a person applied for a car loan at twenty different places instead of just one or two. The result was a big decline in their credit score.
Your credit score is a moving number. By taking care of your finances it will improve. While it does impact you in the future, a credit score is just one piece to the puzzle in regard to obtaining credit.
Future lenders will be most interested in what your cash flow is and whether you will be able to make the loan payments.
Ultimately, it is up to each company, bank, or person to approve your loan application.
Pro tip: it is also helpful to have some money saved to show a future lender that you have the capacity to live within your means. Don’t be discouraged, just do a little bit each month.
Contact Us – We are Here to Help!
While your credit score is important, we believe it is more important to get your finances trending in the right direction. If your monthly payments are being eaten up by interest charges, and your debt is staying the same, or even going up, a Consumer Proposal or Bankruptcy filing may be the best way to break that negative momentum.
At Chase & Associates, we offer a free initial assessment where we will analyze your finances and provide you with information on what options are available to you. This appointment is confidential and non judgemental.
As an independent firm, we have the flexibility to take as much time as you need to have all of your questions answered without any pressure.
Filing a Consumer Proposal or a Bankruptcy in Canada is designed to provide the honest but unfortunate person a fresh financial start. Contact us to set up your appointment today and regain control of your financial future!
