Keeping Your Credit Score High

Prevent Your Credit Score from Plummeting by Following These Simple Tips

Credit. It’s used for everything, from procuring credit cards to purchasing a home.

In Canada, new mortgage stress tests have made credit even more important, forcing home buyers to meet exacting credit standards.

But how can you make sure that your credit score remains safe?

What Is A Credit Score, and How Is It Calculated?

A credit score is a numerical representation of your risk as a borrower. Those with high credit scores are unlikely to be late on their credit payments and are unlikely to default on their loans.

Those with low credit scores are very likely to be late on payments. The higher your credit score, the more willing creditors will be to offer you credit, more credit at lower interest rates!

Here’s how to improve your credit score—and how to rebuild your credit if it’s become damaged.

Watch Your Credit Card Balances and Payment History

First and foremost: make sure that you aren’t late on any payments and that your credit card balances are low as a percentage of the credit limit.

A significant amount of your credit history is impacted by your late payments. Late payments take years to drop off of your credit report.

Credit balances, on the other hand, can be resolved very quickly if you have the cash.

If you absolutely cannot pay more on your credit card, at least pay the minimum balance to avoid being late. But you don’t want to be paying the minimum balance for long: it may take you decades to pay off your credit line with the minimum payments alone.

If you’re having trouble paying off all of your credit cards, consider consolidating multiple cards with a balance transfer card or a personal loan. You can consolidate under a lower interest rate to reduce your payments.

While you should generally pay off your credit cards ordered by highest interest rate first, you may want to consider paying off the lowest balances to simplify your financial life.

Increase the Length of Your Credit History

Your credit history is a significant factor: lenders want to see that you’ve been managing debt for some time. Every time you open a new account, you decrease the length of your credit history.

Keep your oldest accounts open and make sure that they’re paid off. Closing an old, paid off credit card can actually reduce your credit score for some time.

Debts like mortgages are considered to be “good” debt: a type of debt payment that’s considered desirable and responsible to have. Closing this kind of account can actually tank your credit score, temporarily, even if you paid it off in full.

Always Pay Bills on Time

If you let a bill get forwarded to collections, it will eventually show up on your credit report.

Setting your bills to autopay (or just making sure that you pay them all swiftly) is the best way to make sure that you don’t end up with a ding on your credit report.

If you do end up being forwarded to collections, pay the bill off as soon as possible: the paid debt will show up on your account.

Use Different Types of Credit

Creditors want to see a mix of credit: auto loans, mortgages, lines of credit, credit cards, and personal loans. If you have a single type of credit, your credit score may be lower than it could be.

You may want to take on good debt, such as an auto loan or other secured loan. Mortgages are also considered to be “good debt.”

Often, building your credit score means taking on additional debt… but you need to make sure to manage your debt intelligently.

Avoid Risks with Your Credit

Your credit score can also be damaged by malicious users. People regularly try to steal credit card information, so they can use it themselves.

Don’t use credit cards at locations such as pawn shops or third-party online stores. Always check ATMs before using them because there could be a card scanner within. Card scanners will steal your credit information so it can be used elsewhere.

Don’t Obsess

Credit scores generally take some time to rise. If you want to improve your credit score, the answer is going to be: give it time.

Don’t keep checking your account; just develop good habits and wait.

What Is A Good Credit Score in Canada?

A good credit score in Canada is over 650, though the credit score rises to up to 900. After 650, you’ll be able to get most loans, though you need to be over 750 or so to be considered a great borrower.

Now, what is a bad credit score? A bad credit score is going to be one that’s below 500. Between 500 and 650 is “fair.” It’s not good, but it can still be improved.

If you have a poor credit score, don’t worry: there are things you can do now to fix it. Pay off your debts, avoid late payments, maintain a healthy variety of credit, and avoid closing your old credit lines. By doing all of these things, you should be able to eventually build your credit score.

If you want to protect your credit score, you need to both manage your existing credit accounts and open new accounts intelligently. This can be a delicate balance, but over time, your credit score should rise.

If you are overwhelmed with debt and your credit rating is low, or you expect it to plummet due to having an account sent to collections or the garnishment of your pay, it is possible that the best thing you can do is file a consumer proposal. A consumer proposal is a debt and money management plan overseen by a federally licensed and regulated professional. Consumer proposals stop collections, garnishments, collection lawsuits, and accruing interest. A single and affordable monthly payment is required, and you will be debt-free in 5 years or less. Principal reductions to 20% to 40% of the amounts owed are very common. The filing of a consumer proposal will give you a fresh start on building a goo credit score.

Baker Tilly Ottawa Ltd. is a licensed insolvency trustee servicing Ottawa and Eastern Ontario since 2002. Its licensed professionals have over 100 years of combined experience in assisting individuals in financial difficulty. They have overseen thousands of successful consumer proposals. Their passion – their mission – is your health and well-being! Start your journey today with a free initial consultation!