5 Tips for Boosting Your Credit Score Now!
Purchasing a home with bad credit is like trying to eat a peanut butter and jam sandwich, without the jam -- you can do it, but doesn't mean you should! But before we dive right in, what exactly is credit and why is it important to establish good credit? Your credit score is a judgement about your financial health, at a specific point in time. In Canada, there are two main credit reporting agencies: Equifax Canada and Transunion Canada. While there are many ways to calculate your credit score, both of these companies use a scale between 300 to 900. High scores on the scale are good. The higher the score, the lower the risk to the lender. I got my first credit card when I was 18 and started building my credit right away and now have a credit score well above 800, which is excellent. So, if you are looking to buy a home and don't have any credit established or need to boost your current credit score, here are my top 5 Tips for Boosting Your Credit Score Today!
#1 -- CREDIT CARDS
Credit cards are one of the best ways to establish credit or boost your current credit score. They have a direct influence on the most important factors that go into calculating your credit score. So, getting a credit card and using it regularly and responsibly is one of the most effective ways for building or rebuilding your credit score.
Making payments on a loan is another option that will help increase your credit rating, providing you aren't defaulting on those payments. However, chances are if you have no established credit or bad credit, you probably aren't making payments on a loan. If you do have an outstanding loan, see tip #5. Putting regular expenses on your credit card helps you establish credit without going into debt which is why it's one of the best things you can do to boost your credit score.
#2 -- STAY UNDER YOUR CREDIT LIMIT
So you just got that fancy new American Express Centurion card (side note: it's one of the hardest credit cards to get) and you have a $5,000 credit limit, now what? Well, it's time to start using that card responsibly. Just because you have it, doesn't mean you should spend it... especially if you can't pay it back on time (see #3)! In order to help increase your credit score, you want to keep your balances low. This is better known as your Utilization Rate -- the amount you owe as a percentage of your available credit. Or to put it another way, how much of your available credit are you using? For example, if you are continually putting $4500 on your brand new Centurion card each month, it could have a negative impact on boosting your credit score. Depending on your available credit, you should try and keep your utilization rate to about 30% each month.
#3 -- ALWAYS PAY YOUR BILLS ON TIME
Your credit score shows how you manage debt -- borrowing money and repaying it. In order to establish good credit you need a record of "on time" debt payments. This is one of the biggest factors that effects your credit score. Make sure you set up a payment schedule, so you know what's due and when. One option I highly recommend is to set up recurring payments to your credit card. For example, if you have a cell phone bill, your carrier will usually let you set up an automatic payment from your bank account or a credit card. This way you will have automatic payments going to your credit card... just don't forget to pay your credit card bill on time.
#4 -- KEEP ACCOUNTS OPEN
It's very important to keep any credit lines you have open. The longer you use credit, the more predictable you are to lenders. I personally don't recommend opening credit cards just to get a sign up bonus (if you already have good credit than go nuts) and then closing them. This can actually have a negative impact on your credit score because it lowers the average length of your accounts. Rather, it's important to find a credit card that meets your needs and keep it.
#5 -- PAY DOWN DEBT
As mentioned in #3, It's important to establish a history of making payments on time, whether a credit card or loan. If you happen to have a loan then you are going to want to make regular payments on time!
If you are thinking about purchasing a home, it's always a great idea to speak with a Mortgage Broker. A Mortgage Broker will be able to assess your personal situation and set up a plan to increase your credit score and get you on your way to pre-approval status. If you are in Kelowna, I'd highly recommend Rampone-Marsh Mortgages or Catherine Pynappels with LendingMax.
Kyle B. Janzen & Associates