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Credit Reports – Part III – Improving Your Credit Score

In August 2023, our blog titled, “Credit Reports – Part I – Overview” discussed credit reports generally, why lenders need them and what the credit scores mean.  In December 2023, our blog titled, “Credit Reports – Part II – A Detailed Look at Credit Reports” discussed the data on credit reports and how scores are calculated. 

Generally, a credit score above 650 is considered to be good by lenders.  If your credit score is below 650 and you want to improve it, there are various options: 

Pay on Time – Make your payments consistently on time to establish a responsible payment history.  Late or missed payments, bankruptcies, delinquencies, and foreclosures stay on your credit report for 6-10 years.  Set up automatic payments if you are afraid of missing payments.

Limit your Credit Utilization Rate – To determine your credit utilization rate, review your overall credit and compare what is reported to the credit bureau.  If your credit limit is $1,000 and you usually spend $300, then your credit utilization rate is 30%.  It is best to keep your credit utilization rate below 30%.  In addition to capping spending, you can lower your credit utilization rate by paying balances several times per month or increasing your overall credit limit. 

Limit New Credit Applications – Each time you apply for new credit, the lender may perform a hard inquiry which can negatively affect your credit score, therefore, only apply for credit that is absolutely necessary.

Establish Credit Early if you are a Newcomer to Canada – Establish your credit history as early as possible by applying for a credit card or signing up for a cell phone plan.  By paying on time, you can show responsible behaviour to creditors. 

Keep an Old Account Open – Keep one of your oldest accounts open and active since the credit bureau computes the average age of accounts.   The higher the number the better. 

Mix your Credit – Having different credit accounts such as credit cards, personal lines of credit, mortgage and cellphone bills may increase your credit score.  A diverse credit mix shows that you are capable of managing multiple credit accounts.

Review your Credit Report – Review your credit report for inaccuracies or signs of identity theft or fraud.  It is your responsibility to ensure that all information is correct and the sooner an error or fraud is discovered, the sooner you can remedy it. 

Improving your credit score takes effort, responsible fiscal habits, time, and patience.   By using the suggestions above, you can be on your way to a higher credit score!  

If you have any questions or need advice regarding your credit score, reach out to LFS.  We’re here to help!