In Canada, the credit report is administered by two companies: Equifax and TransUnion. This record reflects your payment history, your borrowing capacity and your ability to pay off the various loans well.
It’s like a resume you present to a lender when applying for new credit. If you end up with a poor credit history, whether it’s coming out of a consumer proposal or bankruptcy, or simply as a result of financial hardship, it could prevent you from borrowing again. Here are five ways to improve your credit report:
1. Check what needs to be improved
The first step is to get your credit report from Equifax and TransUnion. You can apply online; this will allow you to know your credit score (or rating), on which financial institutions rely to grant or not a loan and, if necessary, determine the conditions.
It is not uncommon for mistakes to creep into a person’s credit report. It is therefore advisable to check it regularly.
Obtaining a credit file from these two institutions is free. The services you have to pay for are file monitoring or alert programs.
Even if everything on the credit report is correct, there is still a possibility that the credit rating is bad. Here are the main credit scoring factors and their impact on credit score (or score):
• Payment history: A history of overdue payments presents a greater risk to creditors. Thus, this factor has the greatest negative impact on the credit score. This is about 35% of the credit score.
• Debt amount: the debt contributes 30% to the score calculation. The closer you get to the authorized credit limit, the more your credit score is affected.
• Age of accounts: Creditors like to see a history of use and repayment of credit. For someone applying for credit for the first time, for example, there isn’t a lot of data to rely on. This factor represents 15% of the score.
• Combination of accounts: this counts for 10% of the score; lenders want to make sure that the borrower can handle both revolving credit and installment credit.
• History of credit applications: Many credit applications can make the individual appear desperate. This will lower the score. Credit requests represent 10% of the score.
2. Make an agreement with all creditors with whom payments are overdue
Often creditors will take the negative rating off the report if payments are cleared; it may be necessary to make a number of payments on time before the note is deleted. Once this is done, it takes several months for the odds to rise significantly.
3. Avoid making multiple credit applications in a short period of time
While it is normal and expected to apply for credit from time to time, when lenders request the credit report, it is noted as a request, even if the loan is not granted or accepted by the consumer.
If there are too many requests on your credit report, lenders may think you are living beyond your means.
4. Avoid making only the minimum payment and approaching the credit limit
Making only the minimum payment can be interpreted as an inability to meet one’s obligations.
When the credit utilization rate approaches the limit, the credit rating can suffer. So if the total credit available on a charge card is $10,000 and you are currently using $8,000, paying off that balance could increase your score.
It is recommended to keep the credit utilization rate at around 30%. This represents a debt of $3,000 out of an available limit of $10,000, for example.
5. Open a secured credit account
Getting a credit card secured by a deposit can help boost your credit score. This type of card involves depositing money into an account to secure the loan. This gives the creditor a guarantee that the balance will be paid and, at the same time, it allows the consumer to build up a good credit history again and thus increase their score.
Like the resume, the credit report can be improved by adding new experiences, being diligent in payments and meeting deadlines.