We all need to take loans at a certain point in our lives. At such times, it becomes necessary to have a good credit score. Your credit score reflects your financial strength and credibility. A poor credit score reflects your irresponsible financial handling and makes it difficult to take loans. On the other hand, a good credit score signifies that you are a low-risk borrower. The banks offer better interest rates on loans, vehicles, and mortgages to people with good credit scores.
If you have a faulty credit score that is preventing you from getting the best rate of interest for the loans you wish to borrow, here are top tips to help you know how to build credit score in Canada.
Here are three ways in which you can build a good credit score:
- Audit your credit score = Check details such as the balance you have to pay and the number of times you have missed payment. Try to keep your expenditure below 30% of your credit card limit. Usually, ones who maintain good credit scores do not exceed their credit card usage beyond 7%. If you think maintaining a 7% expenditure balance will be difficult to maintain in the existing credit card limit, here’s a trick. Ask your bank to increase your credit card limit. If you have been earning for quite some time and your salary has increased over the years, this should not be a challenge, provided you have also maintained a good credit card score. In this way, your expenditure remains the same, and with a higher limit, now your score can remain in check.
- Limit your purchases = Its is very easy to be tempted by worldly choices. Before you make the next purchase, stop and think if it is necessary. If not, keep the credit card for a more necessary purchase next time. In the same way, if you have alternative options, stay away from applying for frequent loans.
- Go for a consumer proposal to pay your debts = If you are required to pay a high debt amount and want an easier way to repay your debts without hurting your credit score, don’t file for bankruptcy. Instead, you can consider filing a consumer proposal. A consumer proposal is a legal agreement between the debtor and the creditor in which it is mutually agreed that the debtor will pay back a certain percentage of the amount he must pay over a certain period. In return, the laws will waive off the remaining debt he owes, and he can rebuild his credit score. Experts recommend consumer proposal as one of the best ways to resolve debt crises. However, note that a consumer proposal is not applicable for all loans. Suppose you are struggling to repay a credit card debt, bank loans or personal loans, payday loans, overdrafts, unsecured lines of credit, any outstanding bill, tax debts, mortgages, student loans where you have been a student for less than seven years, or debts related to accounts in collection. In that case, you can consider a consumer proposal plan as one of the debt relief measures.
With technology upgrading every day, there is a need to buy the latest gadget or the car with the latest model with an upgraded feature. Adopting good financial habits regularly wherein you can budget your expenditure according to your income can help you make purchases you want, perhaps not immediately but eventually, without reflecting you as a risk to borrowing.