Find yourself with bad credit? The positive outlook is that credit can always be improved! If you currently find yourself with bad credit, you can turn that into good credit with a few practical solutions. There are ways to better your financial habits, pay off debts and rebuild your financial image.
What is a Credit Score?
A credit score is a person’s ability to get approved for financial loans or credit to purchase a product they want or need. When someone has bad credit, their credit score is low. A credit score is a 3 digital number credit by a credit reporting agency like Equifax or TransUnion. Your credit score is calculated based on how you use and pay back credit. If you have never taken out a loan, you will not have a credit score.
There are 5 major factors that are used during the calculation of your credit score: History of Payments (35%), Amount of Debt (30%), Credit Length (15%), Diversity of Accounts (10%), New Inquires (10%).
Canadian Credit Score Range
In Canada, TransUnion and Equifax provide consumers with credit scores that range from 300 to 900. Depending on how you spend money and your history with existing loans, your score will fall in one of the following categories:
- 300 – 559 = Poor
- 560 – 659 = Fair
- 660 – 724 = Good
- 725 – 759 = Very Good
- 760 + = Excellent
Why is my Credit Bad?
If you have found your credit score to be poor, you need to take a look at your financial habits. Every person has a set of reasons why their credit score is bad. However, there are a few common reasons why including:
- Maxing out credit cards or applying for several
- Missing a payment
- Late payments
- Large purchases you don’t have cash for
- Defaulting on loans
How do I Improve my Credit Score?
Everyone with poor credit score wants to know how they can improve. If you ever want to own a car or home, good credit is required for such a large purchase. Having financial freedom is also fantastic which can only be attained through setting certain financial goals.
Conquer Unnecessary Debt
The first step in improving your credit score is creating a budget. Cut up any unnecessary credit cards and start paying back any debt on them. The moment you start tackling this things will improve. See how much you spend every month and stick to it.
Start Making all Your Payment on Time
For any amount that you owe, make sure that you pack it back on time. Late or missed payments will negatively influence your credit score and should be avoided. Skip that meal out or buying a new item of clothing if you know a payment is coming up.
Keep Track of Your Credit
Any resident of Canada has access to one free credit report every year from TransUnion and Equifax. However, if you are actively making progress in improving your score request a second one. A credit monitoring service will also make sure you never drop any points.
Getting bad credit takes a lot quicker than getting rid of it. In order to improve your credit score, a ton of patience is required. But we promise you, time and diligence will result in financial freedom at some point.