Your credit score is an important part of your financial profile and is something banks and other financial institutions take a look at before agreeing to lend you money. Your score is determined by the two major credit bureaus Equifax and TransUnion by using financial information in your file.
A low score can make life difficult to not only get loans but also to lease a vehicle, qualify for a mortgage, or even get a job (some employers do credit checks before hiring). If you want to know how to improve your credit score while dealing with existing debt, keep reading for some important tips.
Review Your Credit Report Yearly
Once a year, you can directly contact Equifax and TransUnion to get a free copy of your credit report, which will not affect your credit rating. If you want to get your credit score, there is a small fee but if you go through a non-profit credit counselling agency like Credit Canada, they can pull your credit report and credit score for free.
You’ll notice that your report will contain the following information:
- Personal identity and possibly your employment information.
- A record of organizations that have recently asked for your report.
- Your payment history for accounts that are reported to the bureau.
- Any information on the Public Record, such as collections, judgments, consumer proposals and bankruptcies.
Understand Your Credit Report
Understanding your report can help you identify what you need to improve about your financial situation.
Each account shown on your report will have a rating that reflects the current payment status of the account. The rating will be a number between 0 and 9; note that this scale is not linear – the numbers are simply used to indicate current payment status.
Scores generally range between 300 and 850. Along with a number, you will also receive an interpretation of your score, which looks somewhat like the following:
800 to 900: Excellent
720 to 799: Very Good
650 to 719: Good
600 to 649: Fair
300 to 599: Poor
The following factors are what influence your score the most:
- Payment history and your repayment habits.
- Credit used (it’s best to stay under 30% of your available credit for the highest score).
- Negative information found in the Public Record, such as collections, consumer proposals, bankruptcies, or judgements.
Report Any Errors
If you notice a mistake on your report, make sure you notify Equifax or TransUnion so they can start the Dispute Resolution process. Clearing up false information can potentially help improve your score.
Start a Debt Repayment Plan
Seek help and work with someone like a certified Credit Counsellor from a non-profit credit counselling agency to start a debt repayment plan. They may even suggest debt consolidation program where you combine all your unsecured debt into one single monthly payment at a reduced interest rate to pay it all off. With lowered interest, it’ll be even easier to pay off your debt.
If you pay your bills on time and avoid taking on more credit or issuing cheques when you have insufficient funds, you should be well on your way to improving your score.