So you want in on some of Canada’s latest and greatest rewards credit cards, annual fee waivers and free flight offers. You have the income, but for some reason, your credit score just isn’t up to snuff. Here’s a few tips to improve your credit score and get it cracking the 700+ barrier.
Improve Your Credit Score
1. Don’t Max Out Your Credit Cards: Banks don’t like when you’re using more than 30% of your available credit line. Statistically, those who do, have a higher propensity to go delinquent on their next bill. Think about it, if you really were in financial trouble, you would likely have to max out your credit cards. Banks don’t like lending to people in financial trouble. The credit score is meant to protect banks from lending to people in those types of situations.
2. Increase Your Credit Lines: As we mentioned above, you really shouldn’t have balances greater than 30% of your outstanding lines of credit. There are 3 ways to combat the problem. First, ask for a credit line increase. By spending the same, but having a higher credit line, you’ll be using up a lower percentage of your credit line. Second, apply for more credit cards. Having additional lines of credit, with the same amount of spend, will once again reduce your total balance to line ratio. Third, if you can’t get a line increase or apply for new credit, pay your credit card balance down twice a month. Again, you won’t be spending any more, but you will be reducing your balance more frequently.
3. Too Much Too Fast: We all want the best credit card offers out there. However, apply for too many credit cards at once, and your credit score will decline. You’ll likely get declined for credit cards you otherwise would be approved for if you spaced out your applications. Look at it from the banks perspective, when someone is in financial trouble, what do they do? Apply for credit, everywhere and anywhere.
Again, people who apply for credit from multiple banks all at once, statistically have a higher propensity to become delinquent in the near future. The banks have difficulty separating those who are just excited to get great offers and can afford it, from those who are desperate for credit, and will likely default – their habits look the same.
So what should you do if you want to travel hack and bonus surf your way to a bunch of 25,000 mile sign-up travel card bonuses? It will depend on your income, your current score and your need for credit. If you’re about to apply for a mortgage, play it safe. To play it safe, wait 60-90 days between applications, then monitor your credit score to see if it was impacted. If it was, see how long before it came back to normal. If it wasn’t impacted, maybe tighten your horizon and be a little more aggressive.
4. Don’t Be Late: This doesn’t mean you have to pay off your credit card balance completely. However, it does mean you can’t be late, even by an hour, when paying your minimum payment on your credit card bill, mortgage, car loan or lease. If you find it overwhelming, then put all of your monthly recurring bills on auto bill payment with your bank – you’ll never be late. You can typically schedule to make the a fixed payment amount, the minimum payment, or any balance in full. Even if you auto pay the minimum payment, and then manually pay the balance, you’ll avoid ever being late. There’s no excuse not to use it.
5. Get Credit: If you want the best credit card out there, you’ll have to have a strong credit score. To have a strong credit score, you’ll need a strong credit history. Just because your a dentist earning a nice six figure income, have no debt, paid cash for your home and car, doesn’t make you a good credit risk according to the bank. In fact, if you’re 45 years old, and have no credit history, that’s a red flag compared to an 18 year old with no credit history.
So while it’s great that you don’t need credit, if you want access to payment products that rely on credit, like credit cards, you’ll have to start building a credit history.
The first step is to know your credit score and to review your credit report at least twice a year. Unfortunately, while you’re entitled to a free credit report every year, your credit report doesn’t come with your credit score. While not free, getting your credit score and credit report are essential to monitoring your financial health, and ensuring there are no fraudulent credit lines in your name. You might even want to consider staying on for your monthly report and credit monitoring, although it comes with a fee. That said, knowing where you stand, and where you have to get to, is imperative if you’re looking to manage or improve your score.