How to improve your credit?

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Before responding to a mortgage application, credit agencies look at several factors, including your credit rating or score. This important factor influences the lender’s decision. When your credit score is good, you are more likely to get a mortgage with a lower interest rate and attractive repayment terms. On the other hand, a worrisome credit score can lead to a refusal of your financing request. Find out from your mortgage broker how to improve your credit rating.

What is a credit score?

A credit score is a very important indicator used by credit agencies. It assesses your credit history and your ability to manage your debts. In the case of a mortgage, the quality of your score allows lenders to measure the risks they are exposed to if they decide to grant you credit.

Calculated from a mathematical formula based on data in your loan file, the credit score is a three-digit number. Your score accumulates points if you use the credit you’re granted responsibly. Your credit score decreases if you don’t manage your loan funds well. In Canada, credit scores generally range from 300 to 900: if it’s around and above 700, it’s good and above 800, it’s excellent.

How to know your credit rating?

Before applying for a mortgage, it’s a good idea to know your credit rating. To do this, you can contact credit reporting agencies such as Equifax Canada and TransUnion Canada. These organizations are responsible for collecting, storing and reporting information on how you use your credit.

To order your credit report, you can contact the credit bureau by phone, send it by mail, fax, online, or submit the request directly in person. For this last option, you receive your credit report right after the agency confirms your identity. For the other options, the file must be picked up at the post office 5 to 10 days after the application is sent.

10 actions to improve credit score

The best credit score is 900. In order to improve your credit score, you must demonstrate by all means your ability to repay the loans you have taken out. This will help you gain the confidence of the lender. Here are some tips to improve this indicator:

Make a budget

Dresser son budget, c’est aussi déterminer le prêt à rembourser en priorité. Donc, afin de cumuler plus de points dans votre dossier de crédit, assurez-vous de vous acquitter en premier des crédits dont les taux d’intérêt sont plus élevés, simplement parce qu’ils vous sont coûteux. Votre budget permet aussi de définir le montant exact dédié pour régler les comptes en souffrance.

Keep your credit card balance below 30%.

Paying the minimum balance on your credit card is not enough to raise your score. Paying it in full will help to raise your credit score. If you can’t make a full monthly payment, it’s best not to leave more than 30% of your credit limit on your statement at the end of the month.

Pay before the deadline

Paying lines of credit, bills, and cards on time is another way to improve your credit rating. Make sure you pay the various debts before their due date, without waiting another day. Knowing that late payments negatively impact your rating, it is always important to ensure payment before the deadline, even when the repayment is a small amount.

Don’t close your unused accounts, keep your old accounts paid off

Compared to a newly created account, credit accounts that have been open and held for a long time are more important for credit score evaluation. So, even if the accounts have already been balanced and you no longer use them, keep them open as long as possible without multiplying them too much. This is a way to show proof of stability to lenders. When you show yourself as a good payer over the long term, your credit score improves. However, you should check your credit agreement to see if there are any charges for unused accounts.

Don’t use up your credit limit

For a better credit rating, use your credit wisely. Credit card and line of credit balances should be below the authorized limit, preferably less than 35% of your credit limit. On the other hand, a balance close to the authorized limit implies a loss of points in the credit score, even if the monthly repayment is complete and on time.

Pay off your credit cards first

Compared to other loans, credit cards have a very high interest cost. For this reason, paying off your credit cards first becomes necessary to reduce your indebtedness while optimizing your credit rating.

Avoid multiple loan applications

To credit agencies, applying for more financing means you are pretending to live beyond your means. It also exposes you to the risk of over indebtedness. For these reasons, limit the number of loan applications on your credit report to increase your score. Also, remember to apply for only the loans you really need.

Vary your credit

Your score is likely to be lower if you have only one credit product. So, having several types of loans such as a card and a line of credit in addition to a car loan, for example, will help your score. However, you need to be good at managing your debts by paying back everything you’ve borrowed on time.

Don’t carry too many credit cards

Having multiple credit cards is not a good practice. For some borrowers, it leads to a significant amount of debt. In addition, having multiple loans of the same type is usually a negative for your credit rating. Try as much as possible to have only one credit card, ideally the older one.

Demonstrate stability in housing and employment

Creditors primarily prefer consumers with stability in their daily lives. While staying at the same address and holding the same job is not always easy, in order to improve your score, keep your stability in check.

Your credit score plays a very important role, especially when applying for a mortgage. It is essential to improve your score in order to guarantee the success of your projects.