Build credit history and improve your credit rating

Build credit
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Since credit rating is one of the primary financial factors considered when evaluating a credit application – whether it’s a credit card, line of credit or mortgage – it’s amazing that you don’t learn how to build a good credit history in high school or even college.

Fortunately, an exemplary credit score will help you take advantage of lower interest rates when you take out a loan for your dream car or home. It can therefore bring you a little closer to your goals. But that requires understanding how credit scores are calculated and using that information to your advantage.

What is a credit score ?

This is a value on a scale from 300 to 900 that measures your financial health. It reflects how you manage your credit and tells lenders how much risk they are taking on when lending you money. The higher your credit rating, the better.

Why does your credit rating matter ?

A high credit rating will help you get a better interest rate when taking out a mortgage or loan. Even if you don’t plan on becoming a homeowner for several years, you need to start building a solid credit history now. A few decimal places off your mortgage rate can save you thousands of dollars in interest charges.

What factors determine your credit rating ?

Canada has two credit reporting agencies:  Equifax  and  TransUnion . They track your credit rating separately. The rating they gave you may not be exactly the same, but it should be similar. These agencies use several factors to determine your creditworthiness, including the following:

The length of your credit history

Maintaining an outstanding balance on your card or line of credit

How often you miss a payment due date

Approaching the limit of your credit tools

How often you reapply for credit

The types of credit you have

The fact that unpaid debts have been sent to a collection agency

Having already declared bankruptcy

How can you check your credit rating ?

Equifax and Transunion allow you to request a paper version of your credit report each year. Finally, you can check your credit rating for free at websites like  Borrowell  and  Credit Karma .

How can you establish a credit history?

If you are young and have little experience with credit, a few mistakes are enough to greatly affect your credit rating. But do not worry. With a little planning and knowing how to go about it, you can improve it easily. Put these five tips into practice.

1. Always make your payments before they are due.

Never, ever miss a payment, whether it’s on your credit card, car loan or cell phone bill. If you are unable to pay a balance in full, call your provider and arrange partial payment with them. This will preserve your credit rating and your relationship with it.

2. Avoid overusing credit.

Your credit utilization rate is the ratio of your credit tool’s balance to its limit. It has a significant impact on your credit rating. Avoid maintaining a balance above 35 percent of your available limit. For example, if you have a credit card with a limit of $5,000 and you want to charge the cost of your dream vacation to it, keep your balance below $1,750.

3. Keep your oldest credit card.

The length of your credit history matters. Keep your oldest credit instrument, even if you no longer use it. It could be a student credit card with a $500 limit or an old card from a department store. Whatever the credit product, keep it and keep it in good standing.

4. Use different types of credit.

Using different forms of credit shows lenders that you can manage multiple payments simultaneously, which has a favorable effect on your credit report. Having a credit card, car loan, and student loan will boost your credit rating.

5. Limit the frequency of your new credit applications.

Applying for multiple credit cards can be a red flag for lenders. To avoid damaging your credit rating, limit the frequency of your new credit applications.

If you’re rate shopping, apply to lenders for a short period of time. The various credit inquiries will thus appear as one, which will limit the damage.

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