How to improve your credit scores
Lenders may use one of your credit scores to help them decide whether or not to approve you for a loan. The higher the score, the greater the chance you’ll be approved and receive a lower interest rate. Of course lenders often look at more than just a credit score when making decisions. Some of the additional factors that might play a role include your employment status, income and bank account balances.
There are many different credit scores used by lenders, including credit scores provided by the two credit reporting agencies — Equifax and TransUnion — and credit scores that are custom built and used by a specific lender.
If your credit scores are looking a little deflated, there are some actions you can take that can help boost your scores.
Review your credit reports
When looking to improve your credit scores, a good first step is to review your credit reports from both nationwide credit reporting agencies — Equifax and TransUnion. After making sure there are no inaccuracies or signs of identity theft or fraud, check to see if you have any unpaid balances or past-due accounts that have gone to collections. It's a good idea to tackle this negative information first by paying off as many outstanding debts as you can. Remember that although it’s important to pay any accounts in collections, they will still remain on your Equifax credit report for a period of six years from the time they went into collections.
Pay on time
One of the best things you can do to improve your credit scores is to pay your debts on time. Payment history makes up a significant chunk of your credit scores, so it's important to avoid late payments. If you struggle with on-time payments, consider using automatic payments for your accounts or setting up alerts so you are reminded to pay.
Keep your credit utilization rate low
Your credit utilization ratio is the amount of overall credit you have compared to the balance that is reported to the credit bureau. For example, if your credit limit is $10,000 and your reported monthly balance is usually about $3,000, then your credit utilization rate is 30 per cent. It's typically best to keep your credit utilization rate at or below that amount. You can do this by spending less on credit, making more frequent (more than once-a-month) payments, or asking your credit card company for a credit limit increase.
Limit applying for new accounts
Applying for new credit accounts will usually lead to a hard inquiry on your credit report, which can negatively affect credit scores for some people, particularly if you’re at the lower end of the score spectrum. So, if you're hoping to improve your scores, try to limit how often you apply for new accounts. Opening a new credit account can also decrease the average age of accounts on your credit history, which is another factor used in calculating your credit scores.
Keep old accounts open
When trying to increase your score, avoid closing any old accounts that have been paid off if possible, even if you no longer use them. One of the factors in credit scores is “average age of accounts” so keeping the accounts open can help maintain the length of your credit history.
How long does it take to see changes in your credit score?
The amount of time it takes to improve a credit score varies depending on your circumstances, but it will likely require a bit of patience and won't happen right away. Some negative factors are easier to overcome than others.
For example, it may take you less time to bounce back from one late payment or a few hard inquiries than from having an account go into collections, or a consumer proposal or bankruptcy. Just remember: Improving your credit score takes effort and patience. There's no one-size-fits-all solution that will change your credit score overnight.