Improve Your Credit Score

Improve Your Credit Score

If you have ever tried to get a credit card, mortgage, rental apartment or a car you know just how important your credit score can be. A credit score is a collective record of your borrowing and repaying history. All repayment records are kept on file and serve as a resume for your future lending needs. If you fail to make a credit card payment, for example, that history is recorded and kept on your file for all lenders to see.  The credit bureau is the government institution that keeps track of your credit score. In Canada, the only three credit reporting agencies are Equifax, TransUnion and Experian. These institutions provide consumers with tools to monitor and improve their scores while helping businesses manage lending risks. There are a few very effective ways to improve your credit score.

A good start to repairing your credit is learning about what hurts your score and how credit scoring works. Understandably, non-payment is the biggest blow to your credit file. Late payments are recorded and are the second largest killer with missed payments coming in third. An un-paid payday loan is an example of the type of repayment mistake that can hurt more than others. A payday loan, if left unpaid accumulates a lot of interest, thus once a loan of this type hits your credit file it damages; it primarily because the regular reporting and quickly increasing debt. Additionally, a payday loan is usually over $1,000 by the time it hits your report causing even more deductions.

It is also important to educate yourself about the various reporting agencies. Canada has three different credit bureaus and as a result, there are three different scores that can be pulled; all using individual credit scoring systems. The FICO score is used to determine mortgage lending and is presently the most important score. However, the Beacon Score can be used to determine specific credentials. For example, if you go to a financial institution and try to refinance your car they may pull your “Beacon Auto Industry Option” score. This score is more focused toward your past auto lending history. Educating yourself about the credit scoring system is the first step in repairing your credit.

Be proactive, sign up for a credit monitoring account. The price ranges from $14.99 a month to $19.99 a month and offers a wide array of useful services intended to improve your score. If you’re trying to save money you can always just order a single report for $23.99 and independently keep track of your own records. One reason why monitoring your credit is so important is because you can’t begin to clean up your profile if you don’t know what’s in it.

To improve your credit score you need to debunk the myths. The first myth is that getting a credit card and using it a bunch of times is the best way to increase your credit. This is incorrect for one reason. The reporting agencies put more weight on you not using your card as it shows that you’re financially stable enough to not need credit. Another common myth is the idea that paying the minimum balance is all you need to pay to get good credit. Paying only the minimum balance for a prolonged period of time illustrates your inabilty to repay the principal debt. The fastest way to improve your credit is to use credit less often and when you do, only use it on big ticket purchases that you can repay in full within 21 days.

If you have bad credit and don’t have a credit card you can still rebuild your credit quickly by getting a secured Visa or MasterCard. A secured card is for people who need a credit card but have terrible credit. The card requires a security deposit which acts as your available credit limit. Everyone is approved so many consider it to be a second chance opportunity. Companies like Home Trust Visa and Capital One MasterCard offer secured credit cards. The Home Trust Secured Visa has the best interest rate at 14.99%. You can get a fast secured Visa by applying through Private Loan Shop. The main benefit of a secured card is that they report to the credit agencies often, thereby improving your credit at a faster rate than a typical credit card. People with good credit can get a secured card as well as it will help their credit history in the long run.

Lastly, you can repair your credit by doing the unthinkable; filing for bankruptcy. Obviously, this should be a consumers last resort as the short-term consequences are quite severe. However, if you are in a financial deadlock and you know that given your income, assets and life-expectancy that you can not repay your debts in this life-time, then bankruptcy is a viable option. Bankruptcy disables you from getting credit for 7 years at which time you are given a clean slate. Speak to a debt specialist to determine if bankruptcy is your best option for improving your credit score.

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