Improve Your Credit Rating.

Billie-Jo, Estate Manager at Locke Consulting, London, Ontario
February 1, 2023

The most reliable way to improve your credit rating is to use credit.  If you do not use credit, little or nothing is reported to credit reporting agencies to elevate your credit score.  But remember that your credit score alone doesn’t mean you will have access to the type of credit (debt) you may find most desirable – typically mortgage debt, and lower interest debt.  A few years ago, TransUnion reported that “70% of people filing for bankruptcy had “strong credit scores”.

Improving your credit rating may start with you opening a credit card account with a high risk lender, some credit card issuers offer an entry starter package, one in which you prepay a deposit that reflects your credit limit.  After using the card appropriately for a period of time you will usually be refunded your deposit and your credit limit will be increased.  And of course, your credit score will be improved.

Credit cards are often a debt trap, they can be difficult to accurately track indebtedness.   After all your statement and payment due dates are different times of the month – meaning that you are always carrying a balance unless you are very careful to pay off all of your charges before the end of the billing cycle.  While we recommend that you use your credit accounts regularly to improve your credit rating, it is important to not put yourself at risk by carrying balances month over month

We also recommend you avoid companies that purport to offer free credit monitoring – they are usually phishing platforms, collecting and reselling your data.  You should contact Equifax and TransUnion directly to get your credit report.  You are entitled to see your report once each year without charge and can more conveniently download a copy directly from each company by paying a small fee on your new credit card.

It is important to be aware that TransUnion and Equifax have different reporting standards and each company is independent of the other.  Some creditors may use only one or the other, while other creditors may review both agency’s reports.  It is not unusual to have different credit scores on each platform.

If we assume that a mortgage approval, from an “A” lender, represents the gold standard in credit acceptance then consider this.  Mortgage lenders like to see you having at least two years of consistent employment, be at least two years away from an insolvency filing and having at least two bank issued credit products reported on your credit report.

Using your credit card often will definitely impact your credit report positively, and help elevate the score.  But carrying debt from month to month, while elevating your score also creates a risk factor.  The more debt you carry, the higher your debt service ratio becomes and the greater the risk you will default on new borrowing.  So, while your credit score is important, to a point, it is more important to have a history of effectively paying off debt

Having a great credit rating will help you to become eligible for credit only as long as you manage your debt in a responsible manner, if you stock pile credit cards without using them you may be damaging your creditworthiness.  A mortgage lender might ask you to cancel superfluous accounts to improve your debt service ratio.

For more information about improving your credit score, getting of debt or learning more about managing debt call the office at 519-646-2222