A higher credit score is important to your financial well being and there are things you can do to help improve this number.
The FICO score is a measure of your credit risk and it is used by financial institutions to help decide if they should approve you for a loan or other form of credit.
Your score can also help decide how high of an interest rate you will be approved at - a strong reason to make sure it's as high as possible.
You can check your credit report for free in Canada through both Equifax and TransUnion.
While both companies' websites will show you countless ways to pay for the report, there is an option hidden somewhere in the back that lets you get a copy of this report at no cost.
While getting your report is free, you are not entitled to a free credit score which leaves you with two choices: you can either pay on these sites to have both your report and FICO score delivered to you instantly, or you can request a free report (which will take about a month to receive in the mail) and then calculate the score yourself. '
If you elect to do the latter, do a web search for the FICO Score Calculator that is offered on the bankrate.comwebsite.
While not exact, the calculator will give you a pretty good idea of where you stand.
Now that you know your score, it's time to decide if some changes should be made to your financial lifestyle to improve it.
While FICO scores range from 300-850, most people will fall into a narrower range.
For simplicity's sake, you can consider anything over 700 to be a good score and anything under 600to be viewed by most financial institutions as high risk.
With the number of defaults in the past few years and lenders tightening their requirements, some would argue you could move the good number up to 750 and say anything under 650 is the new low.
Regardless of far high up the FICO ladder you are today, the following principles can help improve this score and should be followed whenever possible:
- If at all possible, be sure to pay your bills on time.
Payment history is the single most important aspect of your credit score.
- Keep your debt balances low and don't max out your credit cards.
When an account you hold gets close to its credit limit, it will send out red flags that will lower your score.
Try to keep all balances lower than 50 per cent of the available limit.
- The further back your credit history goes, the higher your score will be.
For those starting out in life, this means applying for a credit card, even a low limit one, to start building up the good credit in your name.
You should also reconsider cancelling a credit card you no longer use if it's your earliest source of credit.
If it's a no fee card, consider keeping it around and putting the occasional charge on it (that you pay off immediately) to keep it active.
- Don't apply for more credit than you actually need.
Your score can be decreased when there are a lot of applications or queries on your credit history.
- Finally, multiple types of credit can actually help your score.
Instead of having one type of credit only, a variety of items like a line of credit, cards, a mortgage and a car loan can help to improve your score, but only if they are all paid off on time!
A good credit score can mean the difference between a loan or a mortgage being approved and even what interest rate you will have to pay.
Take the time to look at your credit report and see what small changes you can do to help improve it.
Brett Millard is a certified financial planner and owner of SPEIR Wealth Management Inc. Email
or call 250-861-RRSP (7777).