If you’ve been struggling to meet your financial obligations, there are higher chances that your credit score has gone down. Having a low credit score to a point that you can’t qualify for a mortgage loan can be a real concern to any prospective homebuyer. Your credit score is one of the factors that lenders look at to determine whether you can qualify for a mortgage or not.
But what is a “good” credit score? In Canada, a good credit score starts from around 680 for most traditional lenders. If my credit score is poor, how do I improve my credit score?
The following are some of the helpful ways to increase your credit score.
- Review your current credit reports and score
One of the first steps that you should take to improve your low credit score is to check your current status. It helps you identify the factors that are negatively impacting your credit score. You can check credit bureaus such as TransUnion and Equifax and get your credit score report for an in-depth review.
Factors such as late bills payments, missed payments, and high credit score balance are some of the common elements that can negatively impact your credit score. Also, confirm if there are any errors that are contributing to your poor credit score ratings.
If you identify any errors, consider filing a dispute with the relevant authorities so that the report can be rectified.
Typically, understanding “where you are” first is one of the first steps to improve your credit.
- Pay your bills on time
Paying your bills late can negatively impact your credit score ratings. Consider changing your bill payment approach and start paying all your outstanding bills in time. Once you start doing so, your credit will improve in a short period of time.
Lenders will use your new bill payment track record to gauge your ability to repay the mortgage loan.
- Consider going for higher credit limits
When you decide to go for a higher credit limit, you will drastically lower your credit utilization. The trick is to request a higher credit limit while maintaining the same balance. You can do so by engaging your card issuer and making a formal credit limit request.
Note: Always avoid making a “hard credit inquiry” (which can typically happen during a credit limit increase) as it can have an impact on your credit score.
- Merge your loans
If your credit balance is too high and you can no longer manage to pay it off sooner, you need to come up with a strategy that can save you thousands of dollars in interest payments. If you find yourself in such a situation, one option is to go for a low-interest balance transfer credit card.
In Canada, you can get a low-interest balance transfer credit card that charges minimal interest of less than 1% for a period of six months. For you to maximize this strategy, you should consider paying a higher percentage of your debt or clear everything during the set low-interest periods.
In addition, you can seek a personal loan if you can get one that attracts low-interest rates. Consolidating different types of loans will help you clear off your significant credit card balance within a short period of time thus, improving your low credit score ratings.
- Become an authorized user or get a secured credit card
If you have a friend or even relative whose credit card account has a high credit history and a good credit score, you can request to be added as one of the authorized users. The good thing is that even without giving you their credit card to use, their excellent credit score history will positively impact your score.
Getting a secured credit card is another great way of improving your credit score. If you have a poor credit score or if you don’t have any credit history, you can have a hard time applying for a normal credit card.
You can get a secured credit card from a bank if you can manage to raise the required deposit and use it to build your credit score ratings. The best approach is to ensure that you pay your credit card balance on time so that you can build a good credit score history fast.
Conclusion
Having a low credit score should not discourage you from pursuing your homeownership goal. In our homeowner in-training program, these are the things that we cover to help renters improve their credit score ratings. With good credit (alongside saving up a downpayment), our clients are able to qualify for traditional mortgage loans after the end of our program.
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