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How To Boost Your Credit Score In 4 Simple Steps

How To Boost Your Credit Score In 4 Simple Steps

couple viewing credit scores

Why is your credit score important? If you want to get a mortgage, buy a car, take that vacation of a lifetime, or even rent an apartment, you will need a good credit score. This is the first thing that lenders and landlords will check to decide if they will take a risk on you. It can also play a part in determining what interest rate you pay for a loan whether it be a mortgage loan or a loan to put yourself through college or university. Learning how to make your credit score the best it can be is time well spent, especially if you want to buy your first home. But, you need to implement what you learn to reap the benefits.

But, First What Is Your Credit Score And How Does It Work?

Credit scores are like a grade you are given for how you handle your money. Picture it as a number between 300 and 900 that shows how well you’ve managed credit in the past and how you’re doing now.

In Canada, there are two main companies that keep track of your credit: Equifax and TransUnion. They’re like the scorekeepers. If you want to know your credit score, you can ask them. Although many banking mobile apps now also let you check your credit score a few times a year to make keeping tabs on it easier.

This basic scale of how credit scores are ranked and what the numbers mean:

  • 300 to 560 = Poor
  • 561 to 659 = Fair
  • 660 to 724 = Good
  • 725 to 759 = Very good
  • 760 to 900 = Excellent

When you’re thinking about applying for a mortgage loan, it’s best to aim for a credit score of at least 660. This puts you in the “good” zone and increases your chances of being approved for the mortgage you want. But remember, the higher your score, the better! Aiming for a score above 760 is beneficial because it’s considered “excellent.” People with excellent scores often get offered lower interest rates when they apply for loans or mortgages.

How Your Credit Score Affects Your Mortgage Rate

Many people wonder how their credit score affects their ability to buy a house. The simple answer is: it does. Your credit score directly impacts the interest rate you’ll get on your mortgage and if you’ll get a mortgage at all. The higher your score, the lower your interest rate will usually be. Even a small difference in interest rates can add up when you’re dealing with such large loan amounts when buying a home.

As your credit score goes down, your access to lower interest rates also decreases. The Canada Mortgage and Housing Corp. (CMHC) requires that at least one borrower has a credit score of 680. Anything less won’t guarantee access to the best rates. With a score below 680, borrowers can expect rates to increase gradually because the lender feels there is a higher risk of you missing payments. A credit score of 600 is usually considered “non-prime,” leading to mortgage rates about two percentage points higher than those for “prime” borrowers.

How To Make Your Credit Score Better

Now that you understand what your credit score is and why it’s important to keep it in the “good” zone, let’s explore ways to keep it there.

Always Pay Your Bills On Time: Whether it’s your credit card statement or your phone bill, it’s important to pay every bill promptly. These payments are reported to credit bureaus, and skipping even one payment can seriously harm your credit score.

By paying your bills on time, you’re building a solid payment history. Lenders look for this consistency to trust that you’ll reliably pay them back. Even if money is tight, aim to make at least the minimum payment—it’s better than missing the payment altogether.

Keep Your Credit Spending Below the Limit: Your credit utilization ratio is how much of your available credit you’re using. Imagine you have a credit card with a $1,000 limit, and you usually owe $800 on it. Your utilization ratio would be 80%.

This ratio matters because it’s a key factor in deciding your credit score. Even if you pay your bill in full each month, having a high ratio can make the credit bureaus nervous. It’s best to aim for a ratio under 30% or 35%, as lenders see this as less risky.

Don’t Apply For A Whole Bunch Of Credit Cards: When you apply for new credit, the lender checks your credit history with a hard inquiry, usually causing a 10-point drop in your credit score. If you apply for multiple types of credit within a short time, it’s not smart because each inquiry hurts your score. Lenders might get suspicious about why you’re seeking so much credit and may hesitate to approve you.

Get A Secured Credit Card: Secured credit cards are a good choice for those aiming to build or improve their credit scores. These cards typically offer guaranteed approval but may ask for a deposit, which becomes your credit limit. The perk is that your payment history is reported to credit bureaus, so making timely payments can gradually boost your credit score. Once your score improves, you can then apply for a regular unsecured credit card and eventually a mortgage.

What To Do If There Are Errors On Your Credit Score

Sometimes, when you review your credit report, you might come across errors like inaccurate details or even signs of fraud. If you notice any mistakes, it’s important to file a credit dispute. You’ll need to support your claim with documents like bills, email exchanges with customer service, or even police reports if your card was stolen. Checking your credit score regularly is a good practice to be sure that there are no mysterious changes.

Know That Improving Your Credit Score Won’t Happen Overnight

Even though we all seek immediate rewards in today’s fast paced world, improving your credit isn’t something that happens instantly. The Financial Consumer Agency of Canada states that it takes 30 to 90 days for new information to appear on your credit report. Each update could lead to a slight change in your score. So, it might take around a year before you notice a significant improvement, like moving up to the next credit score category.

As long as you stick to the advice mentioned above, your score will gradually increase. Responsible credit use is the key to achieving a better credit score, even though it’s not a quick or flashy solution.

Want To Learn More About Your Credit Score and, What Kind of Interest Rate You Might Get When You Apply For a Mortgage?

I’m here to help you navigate the financial world with ease. Whether you are ready to buy your first home, or you’re trying to figure out what your credit score is, I’ve got the answers you’re looking for. If your credit score isn’t quite as high as you need it to be, I can help you make a plan to improve it. I can also help you find the best mortgage rate and solution when the banks have turned you down. 

Schedule a consultation with me at this link or give me a call directly at 705-315-0516 and let’s talk about your financial future! We’ll work through the challenges together and get you into that dream home as soon as possible.

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