In our journey to better financial health, improving your credit score is crucial. A higher credit score can secure you lower mortgage rates, better refinance options, and favorable credit terms. Here, we’ll outline five straightforward steps to help you improve your credit score.
1. Monitor Your Credit Report and Score
To improve your credit score, regularly check your credit reports from Equifax and TransUnion. Errors are common—nearly 1 in 5 Canadians have mistakes on their credit reports. These inaccuracies can severely impact your credit score, making it harder to qualify for mortgages and other loans. Look for:
- Inaccurate late payments
- Incorrect personal information
- Fully paid but still listed debts
- Unauthorized hard inquiries
- Outdated bankruptcies or collections
Dispute any errors with the credit bureaus to have them corrected. Regular monitoring helps you catch and fix these issues promptly, leading to an improved credit score.
2. Pay Your Bills on Time
Payment history is the most significant factor in your credit score, accounting for about 35%. Consistently paying your bills on time, even if it’s just the minimum payment, positively impacts your score. Late or missed payments can linger on your report for up to six years, damaging your credit score. Setting reminders and budgeting effectively to ensure timely payments can significantly improve your credit score.
3. Keep a Low Balance
Your credit utilization ratio—how much credit you’re using compared to your total credit limit—also affects your credit score. Aim to keep this ratio below 30%. For example, if you have a total credit limit of $10,000, try to keep your balance below $3,000. To lower your utilization ratio:
- Request a credit limit increase: This reduces your ratio if you don’t increase your spending.
- Pay down existing balances: Regularly paying down your debt can improve your credit score.
4. Keep Old Credit Accounts Open
The length of your credit history also affects your credit score. Keeping old credit accounts open, even if you don’t use them often, contributes positively to your score. These accounts help maintain a longer credit history and keep your credit utilization ratio low, as they increase your total available credit. Closing old accounts can reduce your total credit limit and negatively impact your score.
5. Be Strategic with Credit Applications
Frequent “hard inquiries” can negatively impact your credit score. When applying for a mortgage or home refinance, consider using a mortgage broker who can shop around with multiple lenders using one credit report. This minimizes the number of hard inquiries on your report and protects your credit score.
Improving your credit score is crucial for securing a mortgage, refinancing your home, and accessing other credit products at favorable rates. By following these five simple steps, you can boost your credit score and open doors to better financial opportunities. At Mortgage Squad, we understand the importance of a strong credit score and are here to help you navigate your options. Contact us today to learn more about how we can assist you in achieving your financial goals and improving your credit score.
