How to Improve Your Credit Score

One of the most significant numbers you’ll be associated with is your credit score. A credit score is a three-digit number derived from information contained in an individual’s credit report. Equifax and TransUnion, Canada’s main credit reporting agencies, employ scoring models that use a person’s payment history, amounts owed and other financial information to evaluate their credit habits and generate a score ranging from 300 to 900. A credit score below 560 is generally regarded as poor and often limits individuals’ credit opportunities, while a score greater than 760 is typically considered excellent and often makes it easier to access credit at the best terms.

Your credit score indicates how well you manage credit and can affect your ability to obtain a car loan or make a life-changing purchase like a home. Therefore, having a good credit score is imperative and you should be aware of the many ways you can improve and maintain this crucial number.

Individual circumstances differ, and this will shape the best approach to improving a credit score. You may be in the fledgling stage of building your credit or you may have a bad score and need to make it better or you may have a good score and want to obtain the ideal mark. Regardless, consider the following ways to improve your credit score:

Make Timely Payments

Your payment history has the greatest impact on your credit score. For that reason, you must make it a habit to pay bills or loans on time. Set up automatic payments or calendar reminders for payment due dates so that you don’t miss a payment. If you have defaulted on accounts, pay up and get them current. Late payments may linger on your report for a few years, but having your accounts up to date can benefit your score.

Review Your Credit Report for Errors or Omissions

Errors or omissions on your credit report can cause your credit score to dip. Thoroughly review your report from each of the credit bureaus to ensure the information enclosed is correct. You can access one free credit report from each credit bureau per year. If there are errors or omissions, dispute them with the credit bureau. It typically takes 30 days for a credit bureau to take action. Ensure you have proof of any claims you make. Once the credit bureau has reviewed and verified your claim, they will amend your score.

Lower Your Credit Utilization Rate

Your credit utilization rate (CUR) is the percentage of your total available credit that you’ve used. It is the second most influential factor that affects a credit score. The CUR typically relates to a borrower’s revolving credit—such as a credit card—and the lower the CUR, the higher the credit score. The general rule is to strive for a CUR of 30% or less to enhance your credit score.

Lengthen the Time Between New Credit Applications

Applying for new credit accounts is an excellent way to build credit. However, applying for too many credit accounts in a relatively short period can hurt your credit score. Each application triggers a hard inquiry—an investigation into whether you are a suitable candidate for a loan. Having too many hard inquiries may suggest that you pose a risk as a borrower. If you must make multiple applications for new credit, lengthen the time between applications. Applications for credit cards, for instance, should be spaced at least six months apart.