CREDIT SCORE BOOT CAMP: Boost your credit score fast!
So maybe you let a few bills slide when things were tight. Or maybe you haven’t seen a zero balance on your credit card in longer than you can remember. Then there was that temporary line of credit… that somehow became permanent. It’s amazing how many things we do that weaken our credit score.
A low credit score can prevent you from getting the lowest mortgage rate, or even from getting a mortgage at all. Sometimes, that’s how we first discover there’s a problem. That’s why it’s so important to stay on top of your obligations.
A few missed bills and a sky-high credit card balance could send your score plummeting – and your lending costs soaring. The good news is that there are lots of things you can do to whip your credit score into shape.
With the holiday season coming up soon, it’s a great time for Credit Score Boot Camp. Over the next few weeks, we’ll put you through some basic training: showing you some fast, easy ways to boost your credit score!
Whether you’re looking at buying your first home, thinking of your next mortgage, or just looking for ways to improve your financial fitness – take the time to put yourself through the paces!
GET YOUR CREDIT REPORT: See what your lender sees
You might think that lenders make decisions based on some intricate financial calculation. In fact, lenders can easily pull up your credit report and see your credit score, which is based on how well you pay your bills on time, how much debt you’re carrying, how long your credit history is, your pursuit of new credit, and the types of credit you have.
If you’re going to whip your credit score into shape, you’ll want to know what you’re working with. Get a copy of your report and see what your lender sees.
Credit reports can be ordered for free through the mail, or for a small fee you can download your credit report - and your score - online. More information is available at www.equifax.ca or www.transunion.ca. Scores range from 300 to 900. You’ll want to target a score of 680 or higher to access the best credit rates and terms.
First, check your credit report carefully for any errors. If you spot a problem, contact the agency immediately to have the issue corrected.
Next, look carefully at the factors that are pulling your score down. It takes some time – and some good habits – to build up a low score, but you can probably boost your score by several points fairly quickly by addressing your top credit issues.
PAY THE BILLS ON TIME: You’ll need a fool-proof system
The single biggest factor in your credit score is having a timely bill payment history. Credit agencies keep track of every late payment. And each one impacts your score. The good news is that recent late payments are factored more heavily than old ones: so you can start today with a commitment to NEVER let a bill get past due. In as little as six months, you’ll look more credit-worthy to a lender. The longer your “good” history is, the higher your score.
The hardest hits on your credit score are bankruptcies or accounts that have been sent to collections. Even for a small amount – and even if it is in dispute – being “sent to collections” will create a serious, long-term stain on your credit reputation. Don’t let it happen.
Develop a fool-proof system for bill paying. It doesn’t have to be elaborate. Put your bills on an automatic payment plan. Or take an inexpensive monthly calendar and make it your “bill tracker”. As bills come in, mark the amounts and due dates on the calendar. Be sure to pay at least the minimum required amount (more or all if you can!) a few days ahead of time – as it can take time to process payments!
MANAGE YOUR CREDIT CARDS WISELY: Show your credit worthiness!
Many people make the mistake of rushing to cancel credit cards – in an effort to improve their credit score. Bad idea. High balances are the problem – and your credit score is based on your balances relative to your available credit. Those cancelled cards represented “available credit” – so canceling then could actually hurt your score!
Ideally, you would have a few credit cards with reasonable interest rates, and you would use them regularly and pay them off promptly. Look at your credit card limits, and calculate what 30% of your limit would be. Consider that your upper spending limit and stay within it. Same goes for any lines of credit. Follow the 30% rule and stay on top of payments.
Paying down your debts to under 30% is a great way to boost your credit score. If you need to carry a balance, it’s better to be below the limit on one more than one card, than at or over the limit on one card.
BUILD CREDIT HISTORY: Always keep your oldest credit card.
Wasn’t it exciting? Your first credit card? For most of us, it was our introduction to the real financial world: the privilege of borrowing, and the responsibility to pay back.
Perhaps you’ve changed your financial institution since you got that first credit card. Here’s an important piece of advice: keep that credit card. Even if you now do most of your banking with another institution, that old credit card is valuable to your credit score. If you can, you should always keep your oldest card, and use it a little so it remains active. That long credit history is a valuable asset.
Someone who has no credit history is usually viewed as riskier than someone who has credit and manages it responsibly. If you are thinking of canceling a card, get some advice first, even if you aren’t using it.
Simply put, use credit wisely. Keep your oldest card, use it regularly, and keep it paid up-to-date. Remember the 30% rule, and fight hard to get your overall debt to under 30% of your available credit… and keep it there!
PROTECT YOUR CREDIT RECORD: Play it smart
You know how you’re always asked at the checkout counter: “would you like to apply for our fill-in-the-blank Store Card? You can save $X dollars on your purchase today…”
Don’t do it. These pitches – a common part of the retail experience – are a potential credit pitfall. Applying for these store cards generates a “hard” inquiry that goes on your record, and is visible to lenders looking at your report. Every time you seek credit by applying for a credit card, store card, or loan – you generate a hard inquiry. Too many inquiries will flag you as a potential credit risk because it signals credit desperation. You should keep these to a minimum.
There are exceptions, of course. If you are shopping for a loan or a mortgage, a lender will expect to see a short burst of inquiries against your credit score. It’s best if these happen fairly quickly and around the time of a loan event.
There’s also such a thing as a “soft” inquiry; only you can see these, and they do not impact your score. Potential employers might make an inquiry, for example. And when you check your own credit report, your inquiry is both invisible and irrelevant to your credit score.
Make a habit of checking your credit score each year – and watch how those good credit habits push your credit score skywards!