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How to improve your credit score

Article updated on 19/08/2019
If you’ve just gotten out of excessive debt, your credit score will likely be at rock bottom—but there’s no need to panic. There are ways to rebuild your financial reputation. Follow these tips so that lenders can start trusting you again.

Summary

How to improve your credit score
  • Once your bankruptcy or consumer proposal has been officially filed and sent to your creditors, it’s time to get your credit score back up. Here are some strategies to set you up for success. First, start with a budget.
  • Then you can regain lenders’ trust. To make this happen, you’re going to need to cultivate good financial habits. That means paying all your bills in full and on time.
  • Another good tip is to start borrowing again. But don’t take out just any kind of loan. No matter how you go about it, if you’re on your best behaviour, your score will go up.
1.

Make a budget

It’s exciting to put your money problems behind you and start thinking about financing your new future. But before you make any big moves, start by:

  • Making a budget
  • Figuring out what got you into so much debt to avoid making the same mistakes

That way, you’ll start off on the right foot.

2.

Pay your bills in full

If you’re the type of person who makes the minimum payment on their credit cards, it’s time to change your habits to boost your credit score. Of course, making the minimum payment is better than nothing. But if your goal is to increase your credit score, you’ll have to pay your monthly balance in full and by the due date.

3.

Pay on time

Another way to increase your credit score is to pay your bills, credit cards and lines of credit on time. This means paying BEFORE the due date—not waiting until the day of.

This is even true of small amounts, because all late payments have an impact. And remember—the later the payment and the higher the outstanding amount, the more your score could fall.

 

Start borrowing again to boost your credit score

It’s a good idea to start applying for loans again after a consumer proposal or bankruptcy. This will help you regain lenders’ trust. But do it strategically!

Start with loans that are easy to repay, like:

  • A secured credit card, which means that the bank will ask for a deposit to secure your credit limit (maximum $1,000)
  • A loan that you can repay quickly (less than three years)
4.

Don’t use all your credit

Use less than 50% of your credit limit. For example, if your credit card limit is $1,000, never use more than $500.

5.

Keep your old accounts open

It’s always a good idea to have a long-standing credit history. So if you don’t have to change banks, don’t! Keep your old credit card and line of credit accounts open for as long as possible. This shows lenders stability. And if your history indicates that your accounts are in good standing in the long term, it’ll earn you extra points. We also suggest limiting your credit cards to just one—and keep the oldest one!

 

6.

Check your credit report

If you’re applying for a loan, always ask to see your credit report beforehand to make sure there are no errors. Regardless of whether or not you’re applying for a loan, it’s a good idea to check your report once a year.

To get a free copy in the mail, fill out the online form atwww.equifax.caor www.transunion.ca. If you find an error, you can correct it.

7.

Only have one credit card

It’s not a great idea to have multiple credit cards at once. This can lead a lot of people into excessive debt. Plus, having more than one kind of the same loan (e.g. several credit cards) is bad for your score. So if you can, stick to one card—the one you’ve had for the longest.

8.

Vary your borrowing

Try to take out different types of loans. A car loan, credit card and mortgage are all different types of loans. Obviously, there’s always a risk of going into debt when you have more loans (see the next point). But if you can manage several types of loans and make your payments on time, lenders will be able to trust you.

9.

Avoid applying for too many loans

When you repeatedly apply for loans, lenders will think that you’re at risk of getting into debt. And if any of these applications are refused, it will reflect poorly on your score.

So, above all, avoid:

  • Applying for a line of credit just to see if you’ll get accepted
  • Accepting a credit card just for a discount or reward

Instead, submit several applications at once to multiple institutions. If you submit more than one application within two weeks, it will only count as one credit check.

For example, if you apply for a mortgage with three different banks in the same week, it will only count as one credit check.

On the other hand, if you’re applying for a mortgage every two months, it will show up as separate checks, which isn’t good for your score.

10.

Show stability

Obviously, stability isn’t always something you can control, but lenders like to see a steady job and address. This reassures them that you’re able to pay. As much as you can:

  • Stay at the same address
  • Keep a stable job