8 Tips to Build or Rebuild Your Credit Report

Because your credit report (and the credit score it contains) allows a lender to assess the risk of borrowing. It’s one of the key factors that determines whether you’ll get a loan, and at what interest rate. Think about online reviews from customers of a service or business you’re considering. The better the feedback, the more confidence you’ll gain. 

What is a good credit score?

Your credit score is a number between 300 and 900 that fluctuates over time. And that’s normal. Like a school report card: the higher the score, the better. In one case, it tells parents whether you’re good or annoying, and to a lender whether you’re a low or high risk for a loan or credit. A general rule of thumb:

• A score of 750 and above is considered very good. 
• A score between 680 and 749 is good.
• A score between 640 and 679 is average.
• A score of 639 or lower makes it more difficult to obtain credit. The conditions for obtaining a loan may be more stringent and less advantageous (higher interest rate, endorser required, etc.).

8 good practices to improve your credit

1. Pay on time

Very important to rebuild your credit: always make your payments on time. No matter how much you owe. A late payment hurts your credit score, whether you owe $30 or $1,000. And when you accumulate late payments, it’s even more negative.

How to avoid forgetting and rebuild your credit? Add reminders to your calendar.

Even better: schedule automatic transfers for a fixed amount of your choice and pay them at the time you want.

Helpful tip: It’s also possible to schedule pre-authorized payments for your entire balance. 

Our “seat belt” tip: You could get overdraft protection, such as a line of credit that would be attached to the account your payments go through. If a payment goes through and the funds are unavailable in the first account, the second will cover the first. Note that this tip is especially useful for avoiding a bad mark on your credit report if something unexpected happens.

Keep in mind that to improve your credit score, you must pay your credit card balance in full by the due date.

2. Check your credit report regularly 

Request a copy of your credit report once a year from Equifax and TransUnion. Consider requesting your report from both bureaus, as each may hold different information. Note that you can obtain your credit report for free from the Government of Canada website. However, fees may apply to view it online.

Consulting your credit report allows you to:

• follow its evolution; 
• make sure it is in good condition;
• confirm that it does not contain any errors or inconsistencies.

Something wrong with your report? Ask to have it corrected. Requesting your credit report does not impact your score.

Good to know  : Credit bureaus offer (paid) services to alert you of irregular activity. Some tools and services may also be offered by your banking institution, such as SÉCURIZONE ^MD  This can help quickly detect identity theft, for example. 

3. Avoid having too high a credit balance  

Your credit card or line of credit balance should be relatively low compared to your limit. Like how credit cards work, this is one of the principles you need to know to rebuild your credit.

In an ideal world, it’s best to keep your balance below 30% of your maximum approved credit limit. Above 50% of your approved credit limit, your score could drop. Make sure you don’t exceed your approved limit. 

Let’s say your credit card limit is $2,000. Ideally, you want to stay below $600 in utilization. Going over $1,000 could even negatively impact your credit score.

Pro tip  : Are you often nearing your authorized credit limit? Request a limit increase so your used balance is closer to it. Proportionally, $500 of $2,000 is less than $500 of $1,000. (Okay. Promise. We’re not doing any more math for the rest of this article.)

4. Clean up your credit cards

Regular maintenance of your wallet allows you to reassess your needs and promotes proper use of your credit cards. It’s not a bad idea to have two credit cards, especially for emergencies. However, having multiple cards requires caution to avoid forgetfulness and delays. Misusing multiple credit cards can negatively impact your credit score.

Did you know?

Your credit score can also benefit from your responsible use of two cards.  

Expert Tip Low-interest credit cards are a great option if you don’t pay off your balance in full every month.

5. Avoid making numerous credit applications

As we saw in the previous point, too many cards are like not enough. This notion also applies to requests. Limit them. Whether it’s for:

• Credit card
• Line of credit
• Personal loan
• Mortgage
• Car loan

These are all hard inquiries, meaning lenders will check your credit report for these inquiries. Making these inquiries in a row can make you look like you’re seeking multiple sources of additional credit and are less reliable.

Lenders like to see that you know how to manage your debt and have the ability to repay it. Too many new applications at once can raise questions and set off alarm bells. In other words, it could harm your credit. 

Car Shopping Tip: It’s a good idea to shop around with several companies when buying a car. However, it’s best to wait until you’ve made your choice before authorizing a credit check. Too many inquiries in a short time could hurt your credit report.

6. Consult experts

Never hesitate to seek professional help if you have financial problems, such as poor credit. Together, you can develop strategies to pay off your debt and improve your situation. Sometimes, a single thing or bad habit can damage your credit. Here are some ways to improve it:

• Adopt proven tips to save money
• Learn how to budget for groceries
• Create a Personal Budget That Works
• Discover ways to use your credit card to your advantage
• Put into practice the tips to save for your projects
• Opt for systematic savings to put money aside without thinking about it
• Building an emergency fund

7. Think carefully before endorsing someone

When you endorse someone’s credit application, it’s a bit like lending them your good credit score and credit history. It’s a significant boost that can help someone with bad credit (or a less-than-perfect credit history) get approved for a loan. By doing so, you become responsible for that debt. 

In the event of unforeseen events or late or missed payments, your file will be affected, a nd you will have to repay the debt.

8. Start early

Sometimes the challenge isn’t rebuilding your credit, but rather knowing how to build it. To achieve this, it can be beneficial to get a credit card as soon as you reach the age of majority. By using it responsibly and making your payments on time, you’ll begin building your credit history. 

Have you immigrated to Canada? Banking systems and credit principles vary from country to country. By discovering the ABCs of the Canadian banking system, you will learn how to build your credit.