There are so many ideas and recommendations now on how to improve your credit score, but the reality is that the first thing you have to know about improving your credit score is making sure you’re not spending more than what you’re earning. The whole point about your credit score is that you’re getting a high credit score because you’re able to pay what you borrow.
If you have a regular monthly income from your job or your own profession or business, then you can definitely think about other ways of further improving your credit score. If you’re in Canada, here are a few ideas on simple ways to build credit.
- Settle Your Outstanding Debts
The first thing that you have to do to improve your credit score is to pay your outstanding debts. Whether you incurred these debts from credit cards, personal loans, salary loans, or purchases on credit, all of these things go into the information database that is factored into your credit score.
If you have outstanding debts that have been aging and that you haven’t paid yet, this has a negative impact on your credit score. They would tend to pull down your credit score and may even cause a markdown in your credit report. So, before you think of improving your credit score to borrow more money, make sure you pay what you previously borrowed.
In Canada, a credit score between 680 and 719 is already considered a good credit score and this is what most average people have. A credit score of 720 to 779 is also very good and anything above that is already considered an excellent credit score.
- Maintain A Good Payment History
Your payment history is one of the most important factors that they’ll be looking at when your credit score is being rated and reviewed. This is an important part of your credit score because lenders and creditors rate you for the most part based on whether you’re the kind of person who pays money that they borrowed on time. There are several ways for you to maintain and even improve your payment history:
- Make sure that you remit your monthly payments on time
- If you can’t pay the full amount yet on your monthly outstanding dues, then make the minimum payment that they’re asking for that payment period
- Maintain good communication with your lender. If you think you won’t be able to pay on time for this payment period, contact them right away and ask them to give you a couple of days of extension
- Even if there’s some dispute over a payment that is due, don’t skip that payment while you’re waiting for the dispute to be resolved by their customer service or dispute center
- Pay Your Monthly Bills On Time
Aside from your monthly payments to your loans and credit card purchases, another thing that you can do to improve your credit score is to pay your monthly bills on time. Information about your monthly bills and whether you’re able to pay them on time is also factored into the computation of your credit score.
If you’re not spending beyond your means, and you have a regular income from your salary, professional fees, or business revenues, then you should have the money to pay your bills on time. Lenders and creditors want to see whether you’re able to pay your basic monthly bills when they assess your credit worthiness.
After all, payment of basic monthly bills is a priority of every household. And if you’re not able to pay your monthly bills on time, then there’s a very high likelihood that you won’t be able to pay any credit or loans which they would extend to you. So, if your mobile phone is on contract, make sure you pay your monthly phone bills in full and on time.
- Use Your Credit Card Wisely
Another thing that impacts your credit score is your credit limit. Use your credit limit but don’t go over it unless it’s an emergency or if you have some side income or lump sum amount coming that’s already definite.
If you have a credit card or several credit cards, try not to go over the dollar limit on your credit card. If you borrow more than what’s your authorized limit on your credit card, this can have the impact of lowering your credit score.
This is what you have to balance in your credit limit. Lenders and creditors also give your score points for using your credit, as long as you’re also able to pay for what you borrowed. A stagnant or dormant account that doesn’t use any credit doesn’t look good to them either because it means there’s very little or no cash flow and expense in your accounts. What they want to see on your credit accounts are a flurry of borrowing and timely payments.
- Don’t Use More Than A Third Of Your Credit Limit
Lenders and creditors want to see that you’re using your credit account to borrow money to spend on stuff, but they also want to see that you’re paying back what you owe and that you’re able to do it on time. In short, borrowing to spend and paying what you borrowed is what they want to see. But try not to use more than 35% of your credit limit. It’s better not to use all of your credit limits each month.
- Avoid Debt Consolidation And Adjustment
Try to pay whatever you owe your lenders and creditors on time. If you ask them for debt consolidation or adjustment, information about these things has an impact on your credit score. When lenders and creditors see reports that some of your loans and debts had to be consolidated or adjusted because you asked for payment extensions, this is a flag for them that you’re having trouble making payments on time.
- Take Loans To Acquire Assets
Another way for you to improve your credit score is if you take out non-personal loans to acquire assets. One example is by taking a car loan or even a home mortgage finance loan, or if you have one already by getting a home equity financial loan.
Taking out a loan other than those from your credit cards and personal or salary loans demonstrates to your lenders and creditors that you already have the income and capacity to pay for loans involving substantial amounts such as an auto or home mortgage loan. As long as you’re also able to pay for the monthly payments or amortizations, then by all means take it.
When your lenders and creditors see that you’re also a good payer of your home mortgage loan, then this will significantly improve your credit score further.
Be Worth The Risk
The basic thing about your credit score is that it’s just a number that says whether or not you’re worth the risk of being lent the money that you’re asking to borrow from your lenders and creditors. As long as you maintain good financial and payment discipline, in time, you should be able to improve your credit score.