You probably know by now that a bad credit score comes with not-so-fun consequences. But many fail to realize just how a bad credit score can impact their life and financial goals. Everyone wants to make their life less stressful so that they can be happy. It's time to focus on bettering your financial reputation so you can actually do the things you want in life. A great credit score will knock down barriers standing between you and your goals. This is your year to see how much you can improve you credit score. Here are are some tips to get you started.
Is a bad credit score really that bad?
You tell us. Do you want to move out of your parents house? Landlord's check credit. If you have a bad credit score, you'll have a hard time getting your own place. Want about your dream job? Some employers check your credit history to see how reliable you are, and assess if you are a financial risk to the company. If you want a better a job, you need to have better credit too.
Need to refinance your student loans? In order to apply for a more affordable loan, you first need a good credit score. What about your cell phone? Do you like staying connect to the world? A bad credit score could even hold you back from getting a new phone or a better cell phone plan.
Borrowing will be more expensive this year
Loans and credit rates are rising this year, and they are expected to continue to go up. Borrowing is getting more expensive. Improving your credit score can help save money on interest. The Bank of Canada sets the overnight rate which impacts how lending institutions in Canada charge interest on their loan products. When the overnight rate goes up, the prime rate goes up, which makes borrowing money more costly.
Today's rising interest rates could possibly lead to a higher cost of borrowing well into the future. With higher interest, it is more important than ever to learn how to boost your credit score. A high credit score will help you qualify for lower interest rates. Which helps you save and manage your expenses everywhere you go.
Annual fee: $48
Monthly maintenance fee: $6
Interest rate: 17,99 %
How to improve your credit score
Deep breaths. It's not as hard as you think. Here are 7 simple ways to improve your credit score:
1. Get a secured credit card
It can be difficult to get a traditional credit card if you're new to credit. Especially one that's affordable. You would find it hard to get new loans, or lines of credit, with little to no credit background. In other words, you need credit to build a credit score.
A secured credit card is a great choice for students. You deposit cash for the credit card company to hold in trust. This is what secures the card. This deposit is typically the same as your credit limit. If you default on your payments, the credit card company keeps your deposit to cover the loss. The best way to use a secured credit card is to keep the balance small and make every payment on time. It would just be a matter of time until you see your credit score rise as you use credit responsibly.
2. Be a joint credit card holder
Another way to build credit is to get a joint credit card account with someone who has good credit, like a parent. As long as you both use the card responsibly by keeping the balance low and making payment, your credit score will get a boost. You'll benefit from the positive behavior even if you never use the card yourself.
Please ask someone you trust if they are willing to open a joint credit card account. It will report on both your credit reports, which means there is risk you could hurt their score, and vice versa, if the card is not used responsibly. But as long as your account is debt-free, you will achieve a better credit score.
3. Review your Credit Reports
Credit reporting mistakes are more common than you think. Check your credit report frequently as 74% of credit reporting grievances relate to inaccurate credit reporting information, according to the Consumer Financial Protection Bureau. Copies of annual credit reports and the information about them should be collected and thoroughly analyzed to check if there are any mistakes on your credit report. In addition, these reports also provide insights into factors that can influence your loans.
4. Monitor your credit with free resources
Free credit reports are useful, but they don’t actually include information about your actual credit score. Fortunately, there are many resources to track your credit from one month to the next. Your credit union or bank may offer your credit score and report as a complimentary perk to your banking package. Or you can use services like Credit Karma, ClearScore or Borrowell that let you check your credit report as many times as you want, for free.
5. Paydown debt balances
Another good routine that can impact your credit score positively is to pay your debts early before the end of the term, and making credit card payments before they're due. In particular, the payment of credit card balances in full will help your credit score; a crucial factor that impacts credit bureaus scoring models. That's because credit card balances make up your credit utilization ratio, which affects your credit score. The higher your credit card balances are, the more it hurts your score.
6. Request a credit limit increase
You may ask your credit card issuer to increase your credit limit in addition to paying credit card balances down. It seems counterintuitive, but it works. It helps move your credit utilization ratio in the right direction if you can't pay off your balance right away. It works like this:
The amount you can borrow from the credit card is your credit limit. The limits on all your credit cards determine how much credit you have access to. The balances you owe on your credit cards determine how much credit you have used. Your credit utilization is a number, expressed as a percent, that represents how much credit you have used up – like how many pieces of a pie you have eaten.
The higher your credit card balances are, the higher your credit utilization is, which has a negative impact on your score. You've eaten more of your credit pie, and that's bad. You need to keep your credit utilization under 30% of your available credit. Paydown your credit card balances to keep your credit score trending upwards.
7. Always pay your bills on time
The thing that has the biggest impact on your credit score is your payment history. When you are late or miss payments your score takes a hit. A poor payment history and unfavorable notes on your credit report make it almost impossible to repair your credit. It's critical, therefore, to pay your bills on time every single month. Automatic payments will help you keep track of all your accounts and due dates.
Bonus tip: good credit is like an insurance policy
An emergency fund will be the first financial line of defense and with cash available to cover immediate expenses , you will be able to escape debt. But some emergencies need a little more money than what you have on hand. A good credit score will help you access emergency credit when you really need it.
It’s important to avoid and limit debt, especially when faced with financial distress. But recognizing that you have a strong credit score can be an additional financial safety net. That is why you should always be conscious of your financial goals and work to boost your credit score. At the end of the day, look for and make good use of a credit score strategy that works for you. It takes time to learn how to boost your score, but you will be shocked to find how far your score can progress within just one year.
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About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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