Your credit score is used by financial lending services to assess how well you manage your money. They use your score to get an idea about whether or not you are capable of repaying the loan you’re applying for.
The credit score is calculated on the basis of your credit history. Banks and loan services can turn down your application for a loan if your credit score is poor. Your credit score also determines the amount that that you can borrow and the interest rate that is applicable on your loan.
Your recent credit history matters more than your older credit records. If you haven’t been paying your loan installments on time, the lenders might charge you a higher rate of interest as they are taking a greater risk by lending to you.
Your credit score
In Canada, you can request for a copy of your credit report by getting in touch with either one of the national credit bureaus: TransUnion Canada or Equifax Canada. Your credit report will include:
- Your personal information
- Your financial ties to other people
- Any defaults, missed payments, or bankruptcy declarations
- The amount of debt you are in
The formula for converting your credit report into a credit score is called the FICO formula. The rating score is based on a non-linear scale between 0 and 9. It indicates your current payment status. A rating of zero means that you have no recent financial activity on which to judge your status. The best score that you can get is 1 and the worst is 9.
Improving your credit score
Your credit history cannot be improved overnight. Improving your credit score is a process that extends over many years. However, many financial institutions are more concerned with your recent credit history. Here’s how you can start rebuilding your credit score.
- You can easily move towards improving your credit score by trying to make as many timely payments as possible. Always meet payment deadlines. If you miss too many loan repayment due dates, your credit score will drop rapidly.
- Close all credit card accounts that you not using. If you have credit accounts with high credit limits associated with your name, the loan services could raise the risk level on the loan you’ve applied for.
- Applying for a secured credit card can also help you in raising your credit rating. The credit builder credit cards charge high interest rates and offer low credit limits.
- If you are in a joint account with another person whose credit score is poor, it could negatively affect your credit rating. Try your best to get out of these accounts.
- Reduce the amount of debt you owe by paying back as much as you can.
- If you are having a difficult time managing your finances and cutting down your debt, you can hire a good credit counseling service to help you with your problems.
To conclude, it is impossible to improve your credit card score instantly. It will require you to have patience and discipline. Don’t take unnecessary financial risks. The best thing to do is to only spend within your means.