We’ve already discussed how a secured credit card can help you build your credit, so today we will be taking a more in-depth look at how you can alter your spending and saving habits, to improve your credit score.
Your credit score is essentially a three-digit number that lenders use to help them understand your spending habits and how trustworthy you are. As we mentioned in Credit Tip Tuesday #13, making big purchases often require having a good credit score. However, having a good credit score means much more than just buying your dream car or home. The higher your scores, the more likely you are to qualify for loans, credit cards and get approval for major purchases at favourable interest rates!
So how do you improve your credit score?
1. Pay off your bills and debt payments on timeWhen creditors review your credit report to generate your credit score, they’re very interested in how reliable of a lender you are. Your past payment performance is usually considered a good predictor of future borrowing performance.
You can positively affect your credit score by paying your balance back in full every month and making payments towards any debts or external loans you may have. Paying your bills late or at a lower amount than is owed can negatively affect your credit score. Keeping track of your bills, loans and payments is extremely important if you wish to improve your credit score.
Plastk’s Quick Tip: Set reminders 3-4 days before each of your bills are due in your calendar or mobile phone. This way, you are less likely to forget to make any outstanding payments.
2. Credit Utilization
As we’ve touched upon in other blogs, credit utilization is another important aspect of improving your credit score. You should aim to use no more than 30% of your credit limit if you want your purchases to positively impact your credit score.
A credit utilization rate is the ratio of your outstanding credit card balances to your credit card limit. This means if your credit card limit is $1,000 and your outstanding balance is $300, you are at a 30% utilization rate. 30% is considered by Equifax to be ‘very good,’ so you should strive for this spending rate.
According to Equifax, your credit score is determined by 5 different factors:
Plastk’s Quick Tip: Create a budget where you can ensure your utilization rate does not exceed 30%. We recommend using the Plastk app to track your spending or using Microsoft Excel’s budget template to create a custom budget.
3. Ask for a higher credit limit
Having a higher credit limit, but using the same budget will almost instantly increase your credit utilization. Ask your credit card company how you can increase your limit, so you can increase your utilization. If you're a Plastk user, you can contact our Client Success team to learn how to increase your credit limit!
Plastk's Quick Tip: Just because your limit increases, doesn't mean your spending should! Show your creditors how trustworthy you are by sticking to a budget and keeping your utilization at 30%.
4. Don’t Close Used Credit Cards
Keeping unused credit cards open, as long as they're not costing a monthly fee above your budget, is a smart strategy! Closing an account may increase your utilization ratio, which can negatively impact your credit score.
Plastk's Quick Tip: Credit inactivity can be just as bad as closing a card! If you have multiple credit cards, try to split everyday purchases between cards. For example: charge all food purchases on card A and car payments or gas on card B.
5. Dispute Any Inaccuracies on Your Credit Reports
One of the most important things you can do with your credit is monitoring it on a regular basis. Equifax offers credit reports that can help you check for any inaccuracies. Incorrect information on your credit report can result in a lower credit score.
How Long Does It Take to Rebuild a Credit Score?
There is no way to quickly fix a bad credit score. The amount of time it takes to rebuild your credit score or improve it, depends on your credit history and the reasons behind your want to improve your credit score. Most negative changes in credit scores are because of a negative element to your credit report, such as a late payment or influx of debt. These new elements will continue to affect your credit scores until they reach a certain age.
Rebuilding your credit takes time. There is no easy way to achieve your credit goals, but Plastk hopes to provide you with the tools needed to make your credit journey easier. We encourage you to check your credit score FREE on Plastk.ca or with our app. This is the first step you can take towards making a difference in your credit. Another tool you can use, is speaking with one of our Client Success team members to see if Plastk is right for you! Using Plastk can help improve your credit utilization, assist you in tracking your spending and allow you to become more comfortable with using your credit card.
Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.