Credit scores are like bones in our body: we often don’t realize how important they are until we injure them. However, unlike a broken bone, by adopting sound financial habits, you can heal your poor credit score without too much discomfort. Whether you are applying for your first credit card, purchasing your first car, or applying for a mortgage to finance your dream home, a strong credit history can put you on the road to a brighter financial future.

What is a credit score, and why does it matter?

Your credit score paints a financial picture of how well you manage your money, which helps lenders determine your creditworthiness and your ability to repay outstanding debts on time. This three-digit numeric score indicates your financial history, wellness, and responsibility to prospective lenders. From car dealerships to credit card companies, lenders use your credit score to evaluate your credit risk before determining how much money to lend you – and what interest rate to charge. This score is a measure of trust: the higher your score, the more trust lenders will have in your ability to repay a loan. In Canada, credit scores range between 300 – 900, which can help determine the type of loans you are eligible for and the properties you can rent. Simply put, these three little numbers could mean the difference between approval and rejection for that mortgage, apartment rental, or car loan you have your eye on.

What are the benefits of a good credit score?

While your credit score might not seem important, it plays a significant role in the daily lives of all Canadians. A good credit history can help you get automatic approvals for a new credit card, higher personal loans, and favorable interest rates on loans to help ease the financial stress of large-scale purchases.

What are the challenges of a low credit score? 

Find yourself racking up a high credit card bill each month only to pay it off late or not at all? These financial missteps could spell unwelcome news for your credit score. According to Equifax and TransUnion Canada – Canada’s leading credit reporting bureaus – a score above 750 is considered ‘very good to ‘excellent, while a score near 300 would be considered “low.” Find yourself falling into the low credit score group? If you miss one monthly credit card payment, don’t fret – by being proactive and adjusting your money management practices, you can bounce back from these missteps and protect your overall financial outlook. Plus, your credit score can change every month, so by regularly reviewing your finances and changing your daily spending habits, you could help put yourself back on the road to a bright financial future!

Here are a few valuable tips to help you boost your credit score:

1. Pay your bills on time
Your payment history plays a critical role in determining your credit score. Even if you can only pay the minimum monthly amount for your credit card bill, don’t miss it! Every missed or late payment, no matter how small, can cause your credit score to take a serious hit. Plus, the more payments you miss, the worse it could get. By paying off even a portion of your credit card balance on time each month, you can avoid paying late fees and higher interest rates and, most importantly, improve your credit score simultaneously. Setting up a personal reminder or automatic bill payment schedule for your various bills is a useful way to help you stay on top of all your debts and avoid defaulting or making delinquent payments. So, whether you are paying off your car loan or mortgage, by having a system in place to help you stay on track with your monthly payments, you’ll see your debt levels decrease while your credit score rises. Now, that’s a win-win!

2. Take charge of your debt
While reducing your debt might not be easy, taking charge to pay off your debt today could mean a higher credit score tomorrow! If you have small and more sizeable sources of debt, consider adopting the snowball method. By paying off smaller debts first and tackling the larger ones later, you will see faster improvements in your financial standing, which will help you stay motivated to put your debt behind you. To help get your excess spending under control, consider establishing a new budget that can help you avoid missing any of your bill payments, stay within your financial limits, and enhance your credit score.

3. Select the right credit card(s) to cancel
Have a long-standing credit card you rarely use that you plan to get rid of? Consider holding off. Your credit score reflects the length of your credit history, including the age of your various accounts. Therefore, the longer you have a credit account open, the better your credit score. Closing one of your oldest credit accounts will decrease the age of your credit history, which could be harmful to your credit rating. If you are looking to close a card, consider the one you’ve had for two years over the one you’ve actively used for the last ten.

4. Keep an eye on your credit report
As the age-old saying goes, everyone makes mistakes, and credit reporting agencies are no exception. From misspelled names to incidentally including other people’s personal information in place of your own in your credit file, mishaps by credit reporting agencies can mistakenly harm your credit score. Remember to regularly request a credit report from your local credit bureau to ensure the information on file is accurate and up to date. Here’s some good news! You can request a copy of your credit report each year from one of the two leading reporting bureaus – Equifax Canada and TransUnion Canada – at no additional cost and without having it affect your credit score. Make sure to review your credit report to spot any inaccuracies and notify your respective credit bureau if you have information that needs to be fixed or updated. The bottom line is that by staying aware of your credit information, you can help protect your financial future.

Give your credit score a boost with a credit union…become a credit union member 

Taking charge of your credit history doesn’t have to be a daunting task. Credit unions are a great financial option to help you improve your credit score. Not yet a credit union member? To find your nearest credit union, click here.