Are you aware of what your credit score is? Are you nervous to check?
With companies like Borrowell, we can now get free instant access to our credit score without affecting it. I highly recommend you sign up. Borrowell will provide your score immediately and send you quarterly updates on your progress.
They refer to it as a “soft” check. This is different from when you are applying for credit and an institution pulls your report, which can negatively affect your score if done repeatedly.
So why does your credit score matter?
Your credit score is based on a (secret) formula derived from your credit report, which comprises your credit history. This score determines your “worthiness” for credit or a loan. Here is a list of the criteria that is used to generate your score:
Negative history can stay on your report for 6-7 years, although this varies depending on the type of history.
Credit scores range from 300-900 and can affect whether you are approved for a credit card, car loan, mortgage, line of credit, or any other form of loan or service that involves you receiving something before you pay for it (rental apartment, cell phone, etc.).
The higher the number, the less likely you are to default on any loan, and the more likely you are to get approved and/or receive better rates.
The general “good enough” number is typically 650, meaning anything above 650 will allow you access to loans or credit (although they may not be at the best rates). This varies based on the institution and type of credit applied for.
Does everyone have only one universal score? No. There are two national credit bureaus in Canada: TransUnion and Equifax. Each organization uses a different formula to calculate your score, however they tend to be similar.
When was the last time you reviewed your credit report? Once you’ve got your instant credit score from Borrowell, the next step I’d recommend is requesting the actual report to ensure that there are no mistakes or errors. If there are, you are able to dispute them which can drastically increase your score.
You can get a free copy from either bureau:
*Using Equifax: make sure you cancel your subscription before the free trial ends to avoid having to pay.
Now that you have your credit score and have requested your credit report, how can you continue to build it?
3 Ways to Improve your Credit Score
Outstanding Loans / Debt
The first step to improving your credit score is to pay down any outstanding debts or loans you may have. The typical priority is any loan with the highest interest rate, although there are other strategies that can be considered to free up more cash flow. The main goal – eliminate your debt! Especially loans that aren’t backed by an asset (such as your mortgage).
Develop a Good Track Record
Do you currently use a credit card for routine purchases? If not, you may want to start as it will allow you to build positive credit history. It’s important to always pay your bill on time as well. Create calendar reminders or setup an automatic payment system to ensure you never miss a payment and continue to improve your score.
One of the factors used in the credit score formula is your credit utilization. This means the total amount of credit you are using compared to the total amount available that you have. The general rule of thumb is to try and keep it under 30% at all times. For example, if you have $10,000 worth of credit available (credit cards, line of credit, etc.), keep the balance that you use under $3,000.
Now this can get hard at times with major purchases. No problem. Just make sure you pay off the balance as soon as possible!
Remember, it’s important to understand that if your credit score is low, it’s not the end of the world. By being aware of your score and history, you can use the strategies listed above to get it back to where it needs to be.