Whether you’ve always struggled to maintain a good credit score or it’s recently dropped due to debt accumulation, knowing how to rebuild it is an important step in regaining your financial confidence.
Much like a grade on a report card, your credit score changes based on several factors. It accumulates over time and is affected by the cumulative effect of repeated behavior. A good understanding of the steps to follow will help you get on the road to improvement.
Here are six tips that should help:
1. Check your credit report. To fix your credit score, you first need to know where you stand today. It may not be as bad as you think. Request a copy of your credit report from Equifax or TransUnion online or by phone. It’s also a good idea to check with your bank, which may offer such a service for free. Check your record carefully to see why your rating has dropped.
If you find any errors, please report them immediately, as they may negatively affect your rating.
2. Pay your bills on time. One of the main aspects of improving your credit score is making your payments on time. A delay can hurt your credit rating, especially if it’s significant, because the debt is then sometimes turned over to a collection agency. A good way to avoid delays is to set up direct debits using online banking.
3. Lower your outstanding balance to credit limit ratio. Another determining factor in calculating your credit score is your credit utilization ratio, which is the percentage of available credit that you have used. It’s worth noting that this percentage affects your rating and should ideally be less than 30%. For example, if you have a credit limit of $5,000, you should keep your balance below $1,500.
4. Use credit, but smartly. People trying to repair or improve their credit scores often think it’s best to use cash and keep credit card balances low. This certainly applies to the balance level, but it is equally important to show lenders that you are able to use credit responsibly. Using your credit and making the required regular payments helps demonstrate your creditworthiness.
5. Add your rent. If you are currently a renter and live outside of Quebec, you can request that your rent payments be added to your Equifax credit report. If you make your payments correctly, your score should improve faster.
6. Do regular checks. Equifax and TransUnion update credit reports every month, making it easy to track your score. It is recommended that you set aside time to check your credit report at least once a year.
A good credit score is an integral part of your overall financial well-being, as it is one of the things lenders look at when determining your creditworthiness. Whether you’re planning to buy a house or a new car, a high credit score will help you get better credit terms, including a mortgage. If your rating isn’t what you’d hoped, start by following these six simple steps.
This article is intended to provide general information only and is not intended to provide legal, financial or other professional advice. Please consult with a professional advisor regarding your specific situation. The information presented is believed to be factual and current, but we do not guarantee its accuracy and cannot be considered an exhaustive analysis of the topics discussed. Opinions expressed reflect the judgment of the authors as of the date of publication and are subject to change. Royal Bank of Canada and its entities do not promote, either explicitly or implicitly, the advice, opinions, information, products or services of third parties.