PWL Capital November 9, 2016 Starting Out Improving Your Credit Score with Existing Debt Do you know your credit score? When it comes to adulting, a good credit score is the key to entering the grown-up kingdom.It can affect all sorts of things like landing a job, getting an apartment, home insurance premiums,rates for mortgages, car loans,lines of credit, and even getting a cell phone plan. Since it’s such an important score, you need to make sure it’s as high as can be. A good credit score is above 700, but if you want the best rates, you’ll want it to read 750 and above.Don’t know what your credit score is? I’ve found two free options for Canadians, Mogo.ca or Borrowell.com. They shouldn’t hurt your credit score to check them, but I haven’t done any research on the fine print, so buyer beware! You can also pay $24 to get your score from the official credit bureaus: Equifax and TransUnion. I’ll wait while you go check. Time ticking… You’re back! So…how did you do? Need some improvement on that number? Don’t worry…that’s what I’m going to help you with today. So, now that I’ve completely freaked you out that your credit score will cost you your dream job and your dream home (sorry! But it’s totally a thing), what is it, and how can you improve it? First, let me explain what your credit score is and how it’s calculated. Your credit score is a number that’s used by many organizations to determine if you are responsible at paying your bills and debts.Two agencies in Canada, TransUnion and Equifax, gather information about your payment history in your credit report, and assigns a score that lenders and other organizations can use to decide if they want to loan you money or give you a cell phone plan based on your past history.It sounds harsh to judge you based on a score,but it’s the measure used industry-wide. So, then how can you improve it if it’snot excellent?While there is no silver bullet, there are some straightforward things you can do to improve your score.Here is a very important side note: if anyone tells you they have a program that will re-establish your credit for a fee, run! Only your creditors: think credit card company,bank, government for student loans, can alter your information if it is wrong, or add new information as you take steps to improve your credit. Now, back to the steps you can take to improve your score. In order of importance, they are: Pay your bills on time Don’t go over your credit limit Pay your debt off quickly and Reduce the number of credit applications you make. So, the first and most important step to take in improving your score is to pay your debts (and bills) on time and in full. If you can’t pay your credit cards in full each month, pay at least the minimum payment and then some.If you are in the situation where you can only pay the minimum each month, you’re going to have to come up with a plan to payoff the balance in full. Also, don’t forget other payments too, like cell phone, cable, and utility bills, and gym memberships.While these items don’t normally show upon your credit report, they will if you miss payments. If you struggle with remembering to pay on time, set up email notifications when a bill is due and/or set up a calendar reminder. Number two… don’t max out your credit limit or go over. A lot of people don’t know this, but even coming close to your credit limit without going over will reduce your credit score.This is called utilization and, according to the Financial Consumer Agency of Canada,the amount of credit used should not exceed 35%. For example, if you have a $15,000 Line of Credit, and a $10,000 limit from all credit cards combined, the maximum debt outstanding at any time should be less than $8,750. If your credit card limit is only $5,000,the maximum outstanding at any time should only be $1,750. I learned this the hard way when I was in university. I never went over my credit limit, but didn’t realize that it was a bad idea to use as much credit up to my limit every month, even though I was paying off the balance monthly! If you’re prone to overspending and maxing out your credit cards and/or Line of Credit, you should pay off as much debt as possible, and stick to using cash instead. Number three is pretty self-explanatory. Pay your debt off as quickly as possible. I’ll be covering how to do this in a future video, but while your debt is high, you shouldn’t be taking on more anyway…just saying. And finally, number four – reduce the number of credit applications you make. If you’re looking to get a number of credit cards or loans, don’t do it all at the same time.If you apply for too much credit at once,your score will drop on the presumption that you’re applying for credit due to financial difficulties, making it riskier for lenders.The big exception to this is if you are applying for a mortgage or car loan and shopping around for rates, agencies usually count multiple applications as one if they are all done within a couple of weeks. Improving your credit score is important to adulting, so make sure you’re doing as much as you can to get your score as high as you can.I hope these tips help!If you have any questions you’d like me to cover, let me know!Leave a comment or send me a note. Share: Facebook Twitter LinkedIn Email