The reality of living in Canada is that you need good credit. Major purchases like a car or a house usually mean having to take out a loan or a mortgage. Renters normally have to provide their credit reports before a landlord will approve them as tenants. There are even some employers who require a credit check before hiring a prospective employee.
Know Where You Stand
The first step in building your credit is knowing where you’re starting from. Your credit reports are kept by the two major credit bureaus in Canada: Equifax and TransUnion. Basically, your entire credit history is recorded between the two of them. Your credit score is based on your credit history and is often the reason you will be approved or denied that mortgage, line of credit or any other form of financing. So taking a look at your credit report and knowing your credit score is key to improving it.
Keep Your Older Credit Lines Open
An old credit account, even if paid off, is an easy way to boost your credit score, so keep it open. Having a long history of responsibly managing debt is what separates people who have cheap and easy access to credit from those who don’t.
Increase Your Credit Limit
If the bank or credit card company offers to increase the credit limit on your credit card or line of credit, doing so could help improve your credit score. Having a lot of credit that you’re not using shows you to be more responsible with your finances. The best practice is to use 30% or less of your available credit. Keeping the same balance with a higher limit lowers the percentage of credit you’re using. Of course, it’s important to continue living within your means and making your payments on time, so the extra limit shouldn’t be seen as “free money”.
Use Your Credit More Often
Again, it’s important not to spend more than you can pay back and to make sure you pay your bills on time. Having said that, the more you use your credit responsibly, the higher your credit score. Write out a budget and stick to it. Keep track of your credit purchases. Set up reminders or automatic withdrawals for your bills. These will all help you successfully manage the increased use of your credit and could help you bump up your credit score.
Don’t Max Out Your Credit Cards
As stated above, it’s not a good idea to carry a balance of more than 30% of your credit limit. The credit bureaus use your outstanding credit compared with your available credit as a factor for determining your credit score. The smaller the gap, the lower your score. Having a high credit card balance also means paying more money in interest, money you could be saving or spending on yourself.
Get a Secured Credit Card
Maybe you’re the sole owner in your business for the foreseeable future. Or perhaps you want to create an entity that includes different investors. Or that can own multiple other entities. Or that will have employees and provide maximum tax savings and benefits.Each of these situations and objectives may require a different entity.
Diversify Your Credit Accounts
Having a lot of credit cards is not a good idea and will not improve your credit score. However, having and properly managing different types of credit accounts can have a positive effect on your credit rating. An example of this would be to have a credit card, a line of credit and an auto loan instead of three credit cards or just one with a high limit.
Your credit score is vital to your financial health. Whether you need a better score to rent an apartment, get a mortgage or to get better interest rates, staying on top of your finances and following these tips can help you improve your credit score.