Anywhere you be in North America, credit score is and will remain a crucial point when it comes to either getting your mortgage approved or be it your background check for a job. Credit score helps identify an institution how reliable a person is when it comes to finances.
There are various factors that effects your credit score. But before that you should know where a credit check is done so that it is easier for you to understand how these steps will help you to improve it.
Credit check is done when apply for a new credit Card, applying mortgage for you house or getting finance for your car. It is also done when you sign a contract with mobile carrier or even you move from one carrier to another. Sometimes a credit check is required by companies when you are hired.
Credit score reflects your image in market. Your score will end up deciding how much mortgage you being approved for and if you are, then on how much interest rate.
Raising your credit score is not a big deal, you just need to follow few basic steps and I can guarantee you that your score will definitely improve in 6 months.
1.Check your Credit Score:
Equifax and TransUnion are two consumer credit reporting companies from where you can get your credit report and score for free or with nominal fees. The reason for checking your report is basically to know if there are any errors in the report. If there are any errors in your report you should report to the credit bureau to fix them.
Remember you score may hurt when there is a “hard pull” by potential lenders but at same time there is no penalty when you check credit score yourself. Equifax will keep record of any inquiry(soft or hard) for up to 3 years from the date it was made and 6 years in case of TransUnion. On other side in case of Bankruptcy the information will be kept for 14 years.
2.Apply for Credit Card:
If you don’t have any credit card yet than I would recommend to apply one. Most easy way to get credit card is from your bank with which you’re doing business. If this is not the case than you may opt for secured credit card. Never ever go for store credit cards as they may have high interest rates. If you’re in Canada than I would recommend Tangerine Master Card. It is no fee credit card with 2% cash back on up to 3 different categories and 4% cash back for first 3 months.
3.Use credit card instead of cash:
Always use credit card wherever it is possible to use, as there are many benefits of it. First you are making your credit history as well as most credit cards offers rewards like Cash Back, Aeroplan Points, Aventura points or Air Miles and may vary according to the region.
Second, transaction via credit card is more safe as in case of fraud or you can call your credit card company to stop the payment or get back the money. Other than this you may get extended warranty option, health & travel insurance out of your province, and many more according to your credit card.
4.Pay bills on time:
One missed bill payment can reflect on your credit report for next 6 years. So always pay your credit card or bill payments before time. If your payment due date is on 13th of every month than you should always pay 3-4 days before due date. Best way to do this is to pre-authorize your credit card for your billing accounts and set recurring payment for your credit card in your bank account. This way you will never miss the payment.
Moreover if you can’t pay full every month, it is recommended to do at least minimum payment every month instead of missing it. Your score will also affect if bills were sent to a collection agency.
5.Always spend less than your limit:
Out of all factors, credit score depends that how much total you owe at the end. So,you should not spend more than 60% of your credit limit. Let say if your credit limit is $1000 than you should not spend more $600 and if you always spend more than $600 i.e 60% than please contact with your credit card company to increase the credit limit. As increase in credit limit may require credit check so always request credit card company if they can increase limit without credit check.
6.Don’t just make minimum payment:
No doubt credit card can help us in our difficult times and sometimes we’ve to adjust by doing minimum payment only but it is not recommended for every month. If you’re doing minimum payment than you should not do this for more than 2-3 consecutive months. Always try to pay balance in full.
7.Keep old credit accounts active:
The more older you credit account is the more financially reliable you appears to the lender. So think before closing the old credit card account, until and unless there is any annual fee. When you close your credit account, your overall credit line reduces and you overall usage will increase. However, this may or may not affect your credit score but your average age of credit account will also be reduced.
8.Don’t leave credit cards unused:
If you’re having multiple credit cards than try to use them all. You may divide your usage according to the rewards to reap more benefits. By spreading your usage will also lower your usage ratio, and you can also keep your usage below 60% per credit account.
Unused credit card may result in lower credit score. If you don’t really need those unused credit cards than you should close them. Remember closing credit account will not affect your credit score but you should check your credit report after 3 months to confirm that credit account is no more active on your credit file.
9.Change payment due date:
Sometimes we are not able to pay on time and the reason could be any. I am not sure how many times you can do this but you can request your credit card company to extend or change the bill payment date and most of the companies or banks will do for you.
It is the best thing to do instead of missing your bill payment or adjusting it according to your paycheck.
10.Don’t apply for multiple credit accounts:
You should never apply for multiple credit accounts in a short period of time, doesn’t matter how lucrative offer is going. Each credit check can deduct up to 14 points or maybe more from your total score. On other side if you’re applying for multiple credit accounts or mortgage than it will show that you’re very desperate to get credit and credit institute can simply deny you request. If you are shopping for mortgage, always try to do in a 2 weeks of period as also those inquiries are treated as single inquiry.