So, your credit score is in the dumps. Maybe you consistently make late payments, maxed out your credit cards, or straight up ignored a bill until it was sent to a collections agency. Whatever the reason, your credit score is a snapshot of your financial health—and you’re flat lining.
The good news is that a bad credit score is like a bad grade: with a little work, it can be improved.
Having a good credit score matters because lenders use it to gauge your financial trustworthiness—in other words, whether or not you repay your debts. A high credit score helps you get approved for the best credit cards and lowest rates on mortgages and loans. A low score means lenders might offer you higher interest rates, or they’ll decline your application all together. Credit checks may also be required for rental housing or certain jobs in the financial sector, or the federal government—a low score and sketchy credit history almost certainly means you’ll be rejected.
Now, to burst another credit myth bubble: no matter what you read online, there’s no magic quick fix. Just as a credit score isn’t destroyed overnight, it takes time to rebuild it. However, it doesn’t require a lot of effort to work on raising your credit score. Once you establish healthy habits, the hardest part is being patient and waiting a couple of months for the changes to begin showing up on your credit report.
Here are steps you can take to improve your credit score:
Check your credit report. You should check your credit score and credit report at least once a year to make sure everything is accurate. As I’ve written before, pulling your own credit report will not affect your credit score. You can check your free credit score through Ratehub.ca, and order a free copy of your credit report through Equifax or TransUnion. If you find any errors, request an investigation through the credit bureau immediately.
Pay your bills on time. Paying your bills on time is the single easiest way to improve a credit score, and the key to maintaining a good one. If you’re in the habit of letting unopened mail pile up because you don’t want to face what you owe, it’s time to get real and rip off the Band-Aid. My strategy: I pay my bills as soon as they arrive, not when they’re due. This way, I never have to worry about making a late payment, or forgetting about the bill all together, and I know exactly how much money I have left over for fun stuff once my essentials are taken care of.
Don’t max out your credit cards. First, you need to create a payment plan to whittle down your debt. Once you get a handle on making regular, on-time payments, you should aim to keep your debt levels below 30% of your available limit. This signals to the bureaus that you’re in control of your spending and are responsible with making payments. If you have more than one credit card, keep the utilization rates low: it’s better to have two credit cards each at 50% capacity than one maxed-out card, for example.
Get a balance transfer credit card. The idea is to pay off debt, not move it around, but consolidating outstanding debt onto a balance transfer credit card with a low interest rate can help you pay down your balance faster and save you hundreds of dollars in interest.
Balance transfer credit cards offer a low interest rate, sometimes 0%, for a set period of time, usually six to 12 months. If you decide to utilize a balance transfer credit card, you should aim to have your debt paid off by the time the low interest rate expires. By making on-time payments, you’ll hack away at your debt faster and improve your credit score.
Learn from your mistakes. Whether you’ve successfully dug yourself out of debt or are still struggling, you want to make sure you never end up in that position again. To keep yourself in good financial health, you need to learn from your mistakes – this doesn’t mean beating yourself up over past transgressions, but taking a sober look at your situation and realizing you need to do better.
Unfortunately, there’s still a lot of shame and stigma attached to talking about money and debt. If you’re spiralling out of control, consider talking to a credit counsellor. They can provide basic counselling and teach you about budgeting, and compare the options available to you, including negotiating with creditors and creating a debt repayment plan.