This January, millions of people made a New Year’s Resolution to get their financial house in order. A significant component that people associate with your economic well-being is your credit score. Although credit scores are not the single most important part of anyone's finances, having a decent score is still incredibly valuable if you want to receive any form of credit. Here are four quick tips to improve your credit score.
A large part of your credit score is the amount of debt you owe compared to the amount of credit you have available. If you have a maxed out credit card worth $5,000, your credit utilization ratio (debt owing divided by credit limit) is 100 per cent.
However, if you pay down that credit card until you only owe $4,000, your credit utilization ratio becomes 80 per cent. The lower the ratio, the better your credit score. Generally speaking, you’ll want to keep this ratio below 30 per cent but, anything is better than having a maxed out card.
Moreover, you can increase the amount of credit you have available to improve your credit score. If you’re unable to pay that $5,000 credit card bill, applying for another card could increase your available credit by as much as $1,000. Now, with $6,000 in available credit and only $5,000 owing on the original card, your credit utilisation ratio (again, debt owing divided by credit available) falls to 83 per cent.
However, it’s crucial that you don’t use this card to then get further into debt. Not only would that boost your credit utilisation ratio (and drop your credit score!), but you would be moving backwards from your goal of getting your finances in order.
Credit scores are a way for lenders to see if you are a deserving credit risk. One of the best quick tips to improve your credit score is to demonstrate a history of paying your bills on time.
On-time payments that get recorded by the credit bureaus improve your score, because they paint a picture of a financially responsible person who can manage their money and keep track of their financial obligations.
Likewise, would-be lenders want to see a long history of financial responsibility. Credit scores are heavily based on credit history and the longer your history, the better. Although this isn’t a very quick tip to improve your credit score, paying your bills on time for an extended period is the absolute best thing you can do to improve your credit score.
While credit is not the be all and end all of a person’s financial well-being, it is still widely used in Canadian financial markets to determine whether or not a person is worth lending to, renting to or hiring.
Because of the importance placed on credit scores, many Canadians try to keep their score as high as possible. With these four quick tips to improve your credit score, you’ll be well on your way to that sought after 800+.