In today’s economic climate of tighter credit requirements and increased unemployment rates taking their toll on some Canadians, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a year or two ago.
Your bank or Mortgage Broker can help you determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.
Following are five steps you can use to help attain a speedy credit score boost:
1. Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit and so on.
2. Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.
3. Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.
4. Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.
5. Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.
If you have some equity built up in your home and still have a manageable credit score, you can often refinance your mortgage and use that money to pay off high-interest credit card debt. By clearing up this debt, you are freeing up more cash flow each month and improving your credit score. In the current lending environment, with interest rates hovering at all-time lows, now may be an ideal time for you to refinance.
As always, if you have any questions about your credit situation or your mortgage in general, I am here to help!