To qualify for certain mortgage and loan products, a minimum credit score is essential. A low credit score can mean that you don’t qualify for a loan and/or you can’t qualify for both a mortgage and line of credit, for example. Here is a simple overview that highlights initiatives to give your credit score a quick boost.
1. Optimal Utilization Strategy
When maximizing your credit score, you should look at your utilization, which means the percentage of your available credit to the balance. Equifax Canada states utilization has a 30% weight on your credit score.
Here are two examples of how to optimize your utilization:
A) The store offered you “don’t pay now”—the balance might be small, but if it’s at or over the card limit, this is dragging down your credit score. Always ensure your balance is less than the limit, no matter how small.
B) You have three credit cards, each with a limit of $10,000. One card has a balance owing of $9,900 and the other two have 0 balances. Chances are your credit score is lower than if the usage was spread across the three cards equally—i.e., each with a balance owing of $3,300, or 33% of the limit. Now you no longer have an individual card reporting at 99% utilization. You should see a credit score boost.
2. Statement Date Strategy
Reduce balances owing, as most of the time it’s the balance on that statement date that is being reported. Plan your payments accordingly and allow several business days for online payments to process.
3. Pay Down and Keep Down
This is especially important when your limits are small. Use your credit card frequently, and pay the balance, before the due date, every month. That is the “correct way” to manage your credit—by taking advantage of the grace period you are given by all card issuers.
4. Use All Dormant Credit
People have credit facilities they never use. People tend to favour one (maybe a rewards program) and neglect their other cards. If you are trying to maximize your credit score, it is good to use all available credit fairly regularly.
It will rarely be useful to close these older credit facilities, since they are contributing ‘score juice.’ Equifax Canada states your history can have a 15% weight on your credit score.
These credit facilities can become stale. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately.
5. Clean All Reporting Errors
There might be some incorrect information in your personal credit history that’s dragging down your score.
Here are some common examples:
A) You have two or more personal profiles (this often happens to people whose name is hard to spell, or who have legally changed their name). Combine it into one credit report and ensure late payments are not being reported under your name when it’s not you.
B) That router you returned to the cable company is showing as a collection, but in fact you returned it.
C) There may be incorrect late payments. Equifax Canada states payment history has a 35% weight on your personal credit score.
