Having a good credit score is important as it proves to potential creditors that you are reliable and creditworthy borrower. You will be offered better interest rates on loans and credit cards, with a variety of perks (e.g. rewards points, insurance policies) attached to them. If you do not have a credit history yet or seek to improve your credit score, here are five secrets that will help you attain this goal.
Credit blemishes are quite severe with some debtors; so, the first step to make is to find out where you stand. Obtain your free credit report, which you can do at any time of the year, and have a look at it. FICO scores are in the range between 300 and 900. If your credit score is around 700, it is higher than close to 36 percent of Canadians. Looking at percentages, however, this means that your creditworthiness is fair, and you may want to improve your score.
Another secret to improving your credit score hides in the factors that lower your credit score. Among these are high account balances, too many accounts showing on your credit report, if revolving account information is not enough, and loan balances are high compared to loan amounts.
Once you have a good idea of where you stand and what lowers your score, it is time to take concrete steps to fix it. A smart way to go about it is to have a good credit mix – a credit card, installment loan, etc. Apply for a credit card first and if your score is really bad, choose a department store credit card. Another option is to go with a secured credit card, whereby the issuing institution will extend you a line of credit that equals the deposit you’ve made. It is important to find a credit card which reports to all credit reporting agencies. Having a credit card is not sufficient by itself, as you have to show that you are responsible with different types of credit. This means that you have credit cards or revolving credit and mortgages, auto loans, personal loans, or student loans, which are installment credit. Of course, you will not want to have multiple loans, e.g. auto, personal, mortgage, etc., as this may signal that you have an excessive debt to repay. However, if your credit report does not show an installment loan, you may think of adding a small personal loan. It should be small enough so that you can pay it within the loan’s term. Similar to credit cards, make sure your personal loan will be reported to all bureaus. Check with credit unions when looking for a loan, as they may offer you the best deal in town.
Two more things you should not forget. One is obviously to make your payments on time as late payments will be reflected in your credit report. The other is not to close unused card accounts. This is not a good short-term strategy to boost your score. If you have fewer open accounts and owe the same amount, this may affect your credit score.