The fastest way to improve your credit score
Nearly everyone can stand to have a better credit score, and no one wants to wait around for it - especially when it seems nearly everything, including your next credit card, apartment and maybe your next job, depends on having good credit.Whether you're looking to drastically raise your poor credit score, or just looking to bump your good score to a great score, here's the fastest way to high credit.
1. Take care of outstanding collections debts
Before outlining a strategy to improve your credit score as fast as possible, check your credit, says Kathy Waite, a fee-only financial advisor representing clients in Saskatchewan and across Canada as Your Net Worth Manager.
Every Canadian is entitled by law to one free credit check per year. This is known as a "consumer disclosure" and you can either view it online or request it be sent by mail. Viewing your consumer disclosure will not ding your credit score. You can request your consumer disclosure here.
"People have things that they've forgotten about that could be negatively impacting their credit," says Waite.
For example, Toronto mortgage broker Kim Gibbons says she once had a client who had a $20 debt with Telus in collections - and the client didn't even have a Telus account anymore.
"She paid it off because it was so small, but because it was in collections and because it was still outstanding, it affected her credit," says Gibbons.
Another outstanding debt you might have is a bill you refuse to pay on principle - for instance, you might feel your cellphone carrier overcharged you for your data usage. But these small disputes can impact your credit score, so you have to decide if being right is worth it.
"You might be fighting over $100, but people don't realize if your score falls below a certain threshold, you're not getting the best interest rates," says Daniel Johanis, another Toronto mortgage broker. "That $100 can mean a penalty of tens of thousands of dollars if suddenly you're forced to get a mortgage elsewhere," for example.
2. Lower your utilization ratio.
If you want to improve your credit score fast, make sure your credit utilization is low. Your credit utilization is the amount of credit available compared to how much you're using.
For instance, if you have $1,000 worth of credit available to you, and you keep a balance of $300, your credit utilization ratio is 30 per cent.
"Getting your utilization down to 50 percent is the quickest way to bring your credit score up," Johanis says. And the lower your ratio is, the better, so aim even lower if you can.
This might mean throwing as much cash toward your balances for a little while, or perhaps taking on a second job or selling items to earn extra money to put toward your balances. There are several creative ways to pay down debt quickly.
"Another thing you can do is let's say you have a credit limit of $5,000 with a $4,000 balance. You can call the bank up and ask for an increase," Johanis says "If you're approved for, say, a $10,000 credit limit, take it, because ... your balance still sits at $4,000, and suddenly your utilization goes from 80 per cent to 40 per cent."
Finally, if you have a couple of cards, but a particularly high balance on one, try negotiating a balance transfer deal.
"It's actually viewed better if you have 40 per cent utilization on one credit card and then another 40 per cent on another, than if you have 85 per cent utilization on one card," says Waite.
3. Pay your bills on time.
Universally, consistently paying your bills (credit cards and otherwise) on time is the most guaranteed way to improve your credit score.
"If you're even late 30 days on your cellphone bill, it affects your credit score dramatically," says Gibbons. She, Waite and Johanis all agree that overlooked cellphone bills seem to negatively affect your credit score more than any others.
If you have a bill you routinely overlook, Gibbons suggests setting up an automatic payment.
Pay attention to the little things.
There are also several seemingly incidental actions that you should avoid if you want to see your credit score on a rapid upswing.
For instance, making too many credit inquiries at once can cause your score to drastically drop.
"Credit bureaus see this as a red flag because it looks like you're making a lot of inquiries as a result of getting denied too many times," says Gibbons.
When you're shopping for a car or mortgage, however, those inquiries tend to be grouped together as one inquiry, since shopping around is common in these areas.
Another, more minor red flag is if you've moved to a number of different addresses in a short period.
Finally, if you pay off a credit card and then cancel it, you're hurting your credit score.
"Most lenders want to see two or three credit facilities that you're being judged on, so you should leave some credit cards open even if you've paid them off because it shows you have the ability to pay back your debts as agreed," says Gibbons.
Johanis recommends what he calls the 2-2-2 Rule.
He says you want to have at least two trade lines (credit card, line of credit, loan, etc.) open and reporting to credit bureaus for a minimum of two years with a limit of at least $2,000.
5. Remember there's no overnight fix.
In the world of credit, there's no such thing as an immediate route from a bad-to-excellent or good-to-great credit score.
Gibbons says even if you do all the things recommended to rapidly improve your credit score, don't expect your efforts to be reflected on your credit report right away.
"It can take three to six months to see any changes on your credit report, including a higher credit score, because not all credit companies report to the credit bureau at the same time or the same rate," says Gibbons.
However, your patience now will pay off later, as you will instill good credit behaviors, and once your score does improve - you're more likely to keep it that way.See related: How to build your credit score from scratch, 5 surprising ways you can sink your credit score
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