How To Improve Your Credit Score

By Karen Boies

Your credit score is a judgment about your financial health, at a specific point in time. It indicates the risk you represent for lenders, compared with other consumers. There are many different ways to work out credit scores. The credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900. High scores on this scale are good. The higher your score, the lower the risk for the lender. Lenders may also have their own ways of arriving at credit scores. In addition, lenders must decide on the lowest score you can have and still borrow money from them. They can also use your score to set the interest rate you will pay.

Which parts of a credit history are most important?

 
35% – Your Payment History
30% – Amounts You Owe
15% – Length of Your Credit History
10% – Types of Credit Used
10% – New Credit

Top 5 tips for improving your credit

 
1. Pay your bills on time.

 Pay your bill in advance of the due date, ensuring it reaches the creditor before the payment is due. Pay off debt, don’t move it around. Owing the same amounts, but having fewer open accounts, can lower your score if you max out the accounts involved.

2. Contact your creditors as soon as you know you will have a problem paying bills on time.

 Try to work out a payment arrangement and negotiate with them to keep at least a portion of the late notations off of your credit reports.

3. Reduce the number of active credit cards to 2 or 3 accounts.

 Revolving credit includes department store cards, grocery store cards and gas cards. Establish a minimum of 2-3 trades with good repayment history for 24 months.

4. Keep account balances within 50% of the available credit limit.

 Keep your credit card balances low. High debt-to-credit-limit ratios drive your scores down.

5. Pay or satisfy all outstanding collections and judgements.

It is advisable to avoid applying for credit and having your credit report checked unless you have a genuine need for credit. The risk to consumers with a lot of activity on their credit report over a short period of time is that a lender may interpret this as a sign that you are in financial difficulty or taking on more debt than you can manage. Fortunately most scoring systems will not penalize you if they determine that you are shopping for the best rate on a particular product like a mortgage.

Your credit score is important and you need to take action to make sure that you will be able to borrow money when you need it. If you currently have a low credit score don’t be discouraged. Take action. Start doing the things that will cause your credit score to improve. Be consistent and before you know it you will have better credit.

Karen Boies is a mobile mortgage planner in Greater Vancouver. If you have any questions about your credit score or about getting a mortgage, please call Karen at 604-726-9550 or email at Karen@mortgagecentrecitywide.com