Have you claimed bankruptcy? Filed for debt consolidation? Do collection agencies call you every day?
What caused your credit score to tank is one thing but knowing how to improve it can make the difference between financial distress and financial success!
Our team at Frederick & Company is dedicated to helping individuals from all walks of life manage their finances and take control of their debts. This is why we want to share with you some invaluable information on how you can improve your credit in Alberta. But first, let’s start with looking at what exactly is a credit score and how that score is calculated.
What is a Good Credit Score?
Your credit score is a number that credit bureaus provide to lenders such as banks, mortgage lenders, and insurance companies, in order to assess your “creditworthiness”. In Canada, the two credit bureaus used are TransUnion and Equifax.
Your credit score number can range from bad to excellent, or from 300-900:
- Excellent: 800-900
- Very Good: 720-799
- Good: 650-719
- Fair: 600-649
- Poor: 300-599
When your credit score is in the good or excellent range, it’s easier to get loans and credit approvals as well as qualify for competitive rates. However, if your score falls into the poor or fair range, you may face higher interest rates or outright denials.
How Are Credit Scores Calculated?
If you check your credit score through Equifax and Transunion, you may see different scores but this is normal. Each credit bureau uses different scoring algorithms to determine your overall credit score.
However, there are some main factors involved in calculating your credit score used by both bureaus:
- Payment History (35%): The number and type of credit accounts you have paid on time as well as records of collections and late payments.
- Used Credit versus Available Credit (30%): How much on your revolving lines of credit (loans you can borrow from, repay, and use again such as credit cards) you have available to use versus how much you owe.
- Credit History (15%): How long your credit accounts have been open.
- Public Records (10%): A record of bankruptcies or collection issues.
- Inquiries (10%): How often you’ve had your credit assessed when actively seeking credit such as a new loan or credit card.
Overall, credit scores are used to help determine your financial risk when lenders make the decision whether or not to approve your application for credit. They want to ensure that you will repay the money you have borrowed.
Tips to Improving Your Credit Score
Now that you know how credit scores are calculated, let’s look at ways to improve your credit in Alberta:
1. Settle Your Bad Debts
The first step in improving your credit score is to check for any unpaid debts or debts in collections that have not been settled.
You can do all kinds of things to rebuild your credit but if you have bad debts, your score will remain low.
When it comes to dealing with bad debts, you have options. Click here to explore them!
2. Get a Secured Credit Card
In order to build credit history or start developing a positive payment history, you can open a secured credit card that requires you to pay a deposit – which is also the limit of your credit.
So while it works like a bank account, it reports your payment habits to the credit bureaus and can help boost your credit score.
Keep in mind that “prepaid” credit cards do not report to credit bureaus so make sure you are opening one that does.
3. Keep Your Accounts Open
When you’re working to rebuild your credit in Alberta, it’s important to limit how often you open new cards, switch plans (such as your cell phone), and apply for loans and credits.
For example, if you are consistently paying your phone bill to one company, resist the urge to switch to another even if they have a better deal. It’s tempting, but doing so means that you have to establish a history of positive payments with the new company.
As far as your open accounts go, such as your secured credit card, keep them open even if they are paid off and you don’t use them.
4. Create a Budget
Most importantly, you will need to start managing your money in a way that is productive in ensuring that your debts are paid and remain in good standing.
Plus, a budget will also benefit other aspects of your life by helping you live within your means and have a better understanding of your spending habits.
Start by listing your income as well as writing down what you spend. Over time, you’ll be able to identify the ways you are unnecessarily spending money.
Don’t Let Bad Credit Get You Down
If your credit is low, don’t worry! You can only go up from here! Let Frederick & Company help you take control of your debts so you can work on improving your credit score.
Contact us today so we can get to know your situation and explore your options.