Credit rating is an essential aspect of personal financial health, so it is important to understand what it is and how to maintain a high score. So, in this article, we will discuss what a good credit score is, why it is essential and how to increase your credit rating in Canada.
What is a credit rating?
First of all, you should understand exactly what a credit score is. So it is nothing more than a numerical representation of a person’s creditworthiness.
It is used by lenders, such as banks, to assess the risk of lending money or extending credit to an individual. Factors such as payment history, amount of debt, length of credit history, types of credit used and new applications are considered in calculating the credit score.
Its importance lies in the fact that the higher the credit score, the more likely an individual is to be approved for loans and credit with favorable terms and lower interest rates.
What is a good credit rating?
With the above in mind, the question arises as to what is a good credit score. Therefore, and specifically in Canada, scores range from 300 to 900, where a figure of 650 or higher is usually considered a good credit score, while if it is higher than 580 it is considered an acceptable credit score.
However, some lenders may require a higher score to approve credit applications for specific products, such as mortgages or auto loans.
How to increase your credit rating?
So, if you want to increase your credit rating, here are a couple of tips you should consider.
First, checking your credit report regularly will help you identify any errors or inaccuracies that may negatively affect your credit rating. You are entitled to one free credit report per year from each of Canada’s two credit bureaus: Equifax and TransUnion.
Second, you need to take care of late or missed payments as they can hurt your credit rating, so it’s crucial that you pay on time. Consider setting up automatic payments or reminders to make sure you don’t miss any.
In addition, it is a good idea to try to limit your credit usage. This refers to the amount of credit you use compared to your available cap. Keeping your credit utilization low, ideally below 30%, can increase your credit rating.
You should also avoid applying for too much credit, especially in a short period of time, as this can lower your score. Therefore, only apply for credit products that you need and can repay on time.
Another excellent tip to increase your credit rating that is not often talked about is to keep old credit accounts open, since the longer you have an account, the more reliable it looks to lenders. However, if they have high interest rates or annual fees, it’s best to close them.
It’s also a good idea to combine your credit products, so using loans, credit cards and a mortgage can positively influence your credit rating. However, make sure you can afford to pay all of these on time.
Finally, if you are having difficulty managing your debts, consider seeking credit counseling. Especially if they are professionals in the area in which you reside, for example, Quebec, so they better understand how the system works and help you develop a debt repayment plan as well as provide you with financial guidance.
In conclusion, a good credit rating allows a person to qualify for credit products with favorable conditions and interest rates, secure the rent of an apartment and even benefit when it comes to getting a job, so you should not settle for an acceptable credit score.
By following these tips, you can improve your credit rating and maintain a healthy financial future. So, if you want to learn more about personal finance you can visit our blog. On the other hand, if you believe you are in a very complex situation and are considering alternatives such as filing for bankruptcy or a consumer proposal, we advise you to contact one of the professionals at Poupart Syndic.