5 Steps to Improve Your Credit Score
April 14, 2023
Written by – Zeynep Ertas, SEB Marketing team
Your credit score is a crucial factor that lenders use to determine whether to approve your finance application and what interest rates you will pay. A good credit score can help you get a better deal on a mortgage, car loan, or credit card. On the other hand, a poor credit score can limit your borrowing options and result in higher interest rates and fees.
So, what is a good credit score? In Canada, credit scores range from 300 to 900, with higher scores indicating better creditworthiness. You can check your credit score a number of ways. One way is by contacting one of the two major credit bureaus TransUnion or Equifax, who are each required by law, to provide you with one copy of your credit report per year (upon request). A credit score of 650 or above is generally considered good, while a score of 750 or above is excellent. However, different lenders may have different credit score requirements, depending on the type of credit product that you’re applying for.
Fortunately, there are steps you can take to improve your credit score. Here are five steps to follow:
- Monitor your payment history
Your payment history is the most important factor in your credit score. Late or missed payments can have a significant negative impact on your credit score. Therefore, it’s crucial to make all your payments on time, every time. If you’re having trouble making payments, contact your creditors to discuss alternative payment arrangements. - Use credit wisely
Using credit responsibly can help you build and maintain a good credit score. Don’t use more credit than you can afford to repay and keep your balances low. Ideally, you should aim to use no more than 30% of your available credit limit. If you have multiple credit cards, try to spread your balances across them instead of using one card excessively. - Increase the length of your credit history
The length of your credit history is another important factor in your credit score. Lenders prefer borrowers with a long and stable credit history. Therefore, it’s essential to keep your oldest credit accounts open and active, even if you don’t use them regularly. If you’re new to credit, consider opening a secured credit card or becoming an authorized user on someone else’s credit card to start building your credit history. - Limit your number of credit applications or credit checks
Every time you apply for credit, the lender will run a credit check, which can lower your credit score slightly. Therefore, it’s important to limit the number of credit applications you make. Only apply for credit when you need it, and make sure you meet the lender’s eligibility criteria before you apply. Also, avoid applying for multiple credit products within a short period, as this can make you appear desperate for credit and lower your score. - Use different types of credit
Using a mix of different credit products can help you build a diverse credit history and improve your credit score. For example, if you only have credit cards, consider taking out a personal loan or a car loan. However, don’t take out credit you don’t need or can’t afford, as this can have the opposite effect on your credit score.
Improving your credit score can take time and patience, but it’s worth the effort. By following these five steps, you can take control of your credit and improve your financial well-being. Remember to monitor your credit report regularly and dispute any errors or inaccuracies you find. With a little effort and discipline, you can achieve a better credit score and open new opportunities for borrowing and financing.