The first thing you will need to do is get a copy of your credit report from one of the two major credit reporting bureaus in Canada:
Equifax Canada Inc. TransUnion Canada Telephone: 514-493-2314 Telephone: 905-525-0262 Toll Free: 1-800-465-7166 Toll Free: 1-800-663-9980 consumer.relations@equifax.com www.tuc.ca www.equifax.ca
Your credit score will be calculated with some parts weighing more heavily on your score than others. The breakdown is as follows:
Payment History – 35%
Total Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Type of Credit in Use – 10%
Now that you know where to pull you credit report from and how it’s calculated. Let’s go over some tips and tricks on how to improve you credit score.
1. Stay Well Below Your Limit When it comes to credit cards, the goal is to pay them off every month for your credit score to improve. We all know that this is easier said than done. Paying the minimum every month is a good start as well as making sure you stay as far away from your limit as possible. Once you go over roughly 40% of your total limit on your credit card, your credit score will start to gradually decrease. A good trick is to have the following message on your card: “Danger: Your credit limit is $____(half of what your statement says it is) and you have $____(how much) room left!”
2. Be Mindful Of Having Too Many Credit Cards The number of credit cards and their limits can affect the ability for you to get a new loan, mortgage and your credit score. The amount of cards you have and the limit available, even if the balance on them is zero, can affect the amount you are eligible to receive with a loan or mortgage from the bank. Limit the number of credit cards you truly need to have and get rid of the rest. If your are approaching credit card limits and start to take out a few new cards and loans all at once, the credit bureau can detect that there is some financial hardship and will start to deduct points off of your credit score.
3. Motivate Yourself Create a visual activity that will help keep you on track to paying off as much debt as you can. One way of doing this is by creating a chain link out of paper like we did back in school. Each chain link will represent $100 of debt. Say you have $23,600 owing, your chain will be 236 links long. Every time you pay down $100 remove one of he links until they are all gone.
4. Change Billing Dates If you have bills that arrive before your pay goes into your account, call and adjust the due date. Give yourself some breathing room. Also if you have all of your bills coming out on the first day of every month. Call and move some around to the middle of the month. That way you are not tight on money at the beginning of every month and costs are spread out more evenly.
5. Set Automatic Payments If you tend to have a busy schedule and its not that you can’t pay your bills, rather you just keep forgetting when they are due. A great tip is to set automatic payments for monthly payments like utilities and phone bills. This will keep you on track and help your credit score improve every month that gets paid on time. Make sure that you are checking your statements every month to keep track that the amount they are taking out is in line with what you are used to paying.
I hope this article helps clarify the mysterious world of credit scores and how we can actively work on improving them. A lot of this information came from one of our trusted money counsellors Janet Dillon. If you or anyone you know would like to book a one-on-one meeting with her you can reach her at: janet@thebestmortgageforyou.ca or (905)717-2075.