One of the most important aspects of your financial life is your credit score. As a savvy consumer, you need to know how to get your credit report and how to calculate your credit score. Once you understand where you stand, you can take steps to improve your situation.
It's vital that you take steps to improve your credit score. The difference between fair credit and good credit can mean thousands of dollars in interest saved over the course of a loan. If you can improve your credit rating so that it is considered excellent, you can get the best terms on many of your financial products and services, from mortgage loans to insurance policies.
Tips for Improving your Credit Score
If you want to improve your credit score, it's a good idea to approach your efforts systematically. Here are some tips that can help you improve your credit score:
- Pay your bills on time. Payment history is the most important aspect of your credit score. Late payments are one of the biggest hits to your credit score. If you pay late repeatedly, you are likely to see a rapid decrease in your score.
- Keep your debt balances low. Don't max out your credit cards. When you are close to your available credit limit, it sends up red flags and can lower your score. Try to keep you balances lower than 50% of your credit limit. It's even better if you can keep it to 30% of your credit limit.
- Maintain a long credit history. The further back your credit history goes, the better. When you can show that you have a long history of using credit (especially if you use it responsibly), you can boost your score. You might not want to close a paid off credit card that you no longer use if it’s your earliest source of credit. Put a charge on it on occasion to keep it active and then pay it off immediately.
- Have various types of credit. You don't want all of your credit to be in one category. Mix it up a little. Some different types of credit include credit cards, credit lines, car loans, RRSP loans, and mortgages. The variety of revolving credit and installment credit can help reinforce your credit history, and show that you can handle different credit situations.
- Don’t apply for more credit than you need. The more credit applications you have in your recent history, the more credit hungry you look, and the lower your credit score will be.
Following these steps should help you improve your credit score fast, although “fast” is usually a relative term. It usually takes at least 60 days to see any improvement, and it could take longer (90 to 120 days or more) to see substantial improvement.
Once you establish good credit habits, though, and follow them consistently, you will be able to to improve your credit score, and then maintain this higher score. You'll get access to better financial products and services, and even save money over time.