Retirement Planning Vancouver | How to Improve Your Credit Rating

There are significant reasons why you should be concerned about how to improve your credit rating. If you want to be considered by lenders and get the best rate of interest on any sort of loan you take out please keep reading. In this article we help you find out what an excellent credit score is, how it is calculated and what it can help you do in achieving your financial goals and ultimately your financial freedom. We also give some practical steps on how to improve it no matter where it is on the scale.

What is a credit score?

Improve Your Credit Rating | Thomas Chan

A credit score is a three-digit number assigned to the individual and it ranges from 300 to 800. This is a score that lenders such as banks use to rate the risk it is to lend to you on credit. This 3-digit number indicates to them the likelihood of you paying back the loan. The score given is on a sliding scale where less than 500 is a terrible credit rating, 501 to 579 is a very poor rating, 580 to 619 is a poor rating, 620 to 679 is an average rating, 680 to 719 is a good rating, 720 to 779 is a very good rating and 780 or higher is an excellent rating.

What makes up a credit score are a multitude of factors. Payment history, amount of debt owing, and the length of credit history are all major factors that contribute to the score. Other things like income and types of credit you hold are also factored in. When you have a high score it means you have demonstrated responsible behaviour in the past when borrowing money or even making your payments on time.

The main credit bureaus

There are two main credit bureaus that each come to a similar score but in different ways. They are Equifax and TransUnion. A third one that will tell you more info for free is called Borrowell. This last one is a good one to use if you are just getting started and want to see where you are. It will give a general idea of what is affecting your score and will also give recommendations on how to improve it. It takes the information about your credit from the other two main credit bureaus.

If you need more information or details then it is best that you pay a small fee to Equifax or TransUnion to get it. You can also make sure there is no fraud going on and that your identity has not been compromised. One last advantage to paying for your score is to catch any errors and report them. You can be denied a loan or mortgage just for a mistake on your credit report.

How to get a credit report

Getting a credit report is as easy as going online to a credit bureau. You will need to know your personal information and some of that may be quite dated. For example, what address did you previously live at or what cell phone number did you have before the one you have now.

You may have found out that you need to improve your credit rating so you can gain access to more favourable lending rates. The first step to do that is to not miss payments. Your payment history is one of the most crucial factors in determining your score. When you miss payments and often, you become the highest risk and your credit rating goes down. To be sure you are not late, never go past 29 days over the payment date. Once you hit 30 days it is considered late and can be reported to the credit bureau which will affect your score.

Improve Your Credit Rating by having no outstanding payments

The next way to improve your score is to catch up on missed payments. Even if you have it marked on your credit score, once you are all caught up you can expect your credit score to go up. The next step after all your payments are made is to start building your credit file. This means to have credit. You cannot build your score without having credit in your name. Once you do have some loans, lines of credit or credit cards, you must remember to pay them in the time owing. This helps you to build a good credit track record. The best thing you can do for yourself is to show you are responsible with your credit.

Keep credit card numbers down

The key to keeping a good score is to only have one of each type of credit. This may look like one credit card, one loan and one line of credit. Stay away from applying for multiple free credit cards because the more you do that the less favorable it will be on your credit score. Rate shopping is different. For example, if you are shopping for a car or mortgage the lenders will take these multiple inquiries into consideration. They likely will not see them as risky because they know you are shopping around for the best rate.

Any credit score is salvageable

If you have a poor credit score do not worry as you can rebuild it over time. The first thing to figure out is what is hurting your score. Having one missed payment does not take long to repair. Having multiple missed account payments takes longer. If you go over 90 days of missed payments that takes even more work. Things like repossession, bankruptcy, and foreclosure also cause much bigger issues. It could take years to recover from these.

The credit score alone is not enough to determine the rate you will be given. How long you have had credit is also taken into consideration. Something else that is misconceived is thinking if you do not max out your credit cards, you will automatically have a good rating. The rule of thumb here is to keep the limit to 30-50% utilization. If you owe the whole balance on your credit card, it becomes a red flag for the lenders.

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The three takeaways from this article are to pay your bills on time, do not get multiple shoppers credit cards and check your credit score periodically like every 2 years. For more advice and information be sure to contact Thomas Chan and his expert team, or check out the YouTube Channel for extra knowledge.