When it comes to credit scores, 720 or above is where you want to be. Three years ago, Nicole Sanders, a Vancouver-based marketing consultant, 33, was sitting not so pretty with a score of 455. Not paying bills on time, having a large debt-to-credit ratio, and a credit card bill sent to collections, were just a few of the things that helped sink her score.
Today Ms. Sanders (not her real name) has a score above 720. She got there by figuring out where she was, how she got there and what specific steps she should take to improve. If you're looking to purchase a home or car or just prepare for a future event that could require some sort of financing, then you may want to incorporate a few of the same tactics Ms. Sanders used to raise her score.
Know your number Credit scores range from 300 to 900. A higher score could translate into thousands saved over the life of a loan. Someone with a score above 760 could pay thousands of dollars less in interest per year on a mortgage than someone whose score is 600. For around $22, you can view your score online at either Equifax or Trans Union. Your score will also come with a detailed report of your financial history.
Scan your report Laurie Hollowell, 28, an elementary school teacher in Calgary, recently looked into qualifying for a mortgage and was told she had to fix her credit first. She didn't understand why. As far as she knew, she was in good standing. Apparently she unknowingly had a final phone bill sent to her university home, in a different province, which she never received and it eventually went to collections. "I had no idea this bill even existed. It took me a while to get this sorted and it slowed the mortgage approval process quite a bit. I was just glad I didn't have to move too quickly, or miss an opportunity, due to this mix-up," she says.
It's best to know you're in good standing prior to applying for any type of loan. If you order your credit score online, it will come with a detailed report of your history. If you're only interested in viewing your financial history, you can do that for free. You can either call Equifax at 1-800-465-7166 or TransUnion at 1-800-663-9980. You can also request a free copy on either of their sites, but phoning is far easier to do and your report will arrive within the week.
Pay the minimums and simplify "The most important factor in rebuilding your credit is your payment history. Make sure that you are making your payments in full and on time. If you can't afford to pay the entire balance, then at least pay the minimum," says Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc. Mr. Schwartz also recommends setting up automatic repayments with your lenders as this will help alleviate the worry that you might miss a payment or accidentally pay the wrong amount.
Chip away at debt The second highest percentage in calculating scores takes into account amounts you owe. If you're overextending yourself with a high debt-to-credit ratio, a potential lender may look at this as unfavourable. Along with reviewing the debt-to-credit ratio of outstanding loans and making a plan to reduce debt loads, lowering interest on high-interest cards should also be considered. The Financial Consumer Agency of Canada is a great resource for comparing the features and rates of various cards, or try creditcards.ca. This will make your debt load slightly easier to manage and potentially free up some additional money to put toward debt.
Ask for help There are also a number of not-for-profit counselling services available for those of us looking for a plan to alleviate debt and improve credit scores. A free consultation with a non-profit such as Credit Counseling Services of Canada Inc., or Credit Canada could arm you with a specific debt repayment plan and tactics to improve your score and your peace of mind.
The bright side for those with less than desirable credit is that it's possible to boost your numbers if you have a grasp on your finances and you know how credit scores work. "It's going to take some time, though. It took time to get into the problem so it will take some time to get out of the problem," Mr. Schwartz says.
Ms. Sanders agrees: "It took a couple of years to get my credit to where I wanted it to be. My number will now work to my advantage. You know, a lot of women are happier with lower numbers in most situations - weight, age, dress size, etc. But, when it comes to your credit score, the higher the number, the better!"