Spoiler alert: the answer is “always”.
When someone utters the words “credit score” there is usually a collective sense of stress or worry. After all, credit scores do tend to dictate what we’re able to afford and therefore, how we live our lives. Whether you’ve got an excellent credit rating, or a not-so-great credit score, you should always make a conscious effort to either repair or maintain your credit score.
If you’re looking for quick tips to repair your credit, we regret to inform you that while there are steps that are easy to follow, there aren’t any magic methods to drastically improve your credit overnight. Whether you’ve got a mortgage to pay off, credit card debt, or bad credit car loans in London, there are other effective ways to overcome it and get a win in the end!
When it comes to repairing credit card debt, we’ve got the “how” and the “when” narrowed down.
Understanding what a Credit Score is
Before delving into how and when one can repair their credit score, let’s quickly summarize what a credit score actually is for those that may not be sure.
A credit score is a number assigned to individuals that reflects their credit health. Typically, credit is initially built with the use credit cards. If you got your first credit card at 18 and fully paid off your monthly bills regularly, there’s a high chance that your credit score is great. If you had multiple credit cards, and paid off some but not others, it will reflect negatively on your credit score.
So, depending on how you manage your finances, your credit score can vary. Ultimately, it’s important to always aim for a high score as it can definitely help you navigate through life a bit easier. The main factors involved in calculating a credit score include public records, number of inquiries on your credit score (try to limit this as much as possible), your payment history and the length of your payment history, and your used credit versus your available credit.
Breaking down Credit Scores
The credit score spectrum ranges from 300 to 900. Here’s the credit score classification breakdown:
300-599: “Needs work”
600-649: Fair Credit
650-719: “Good Credit”
720-799: “Very Good Credit”
800-900: “Excellent Credit”
Being aware of what range your credit score lies in is crucial as it affects what loans you may be approved of. These “loans” apply to many different areas. If you’re applying for a new credit card, a mortgage, a car loan in London, or a bank loan, your credit score will be checked.
Credit scores also impact whether a bank will issue a debit card, or how corporations manage their systems. Basically, your credit score is used on a scale for lenders to determine whether you pose a risk on their loan return. Many lenders will provide offers for those that have credit in the “good” range or higher, but obviously the goal for anyone should be to build and retain credit in the “excellent” range.
If you have a credit score below the “good” range, and especially if it’s in the “needs work category”, you should take the necessary steps to improve it.
Improving Your Credit Score
We’ve already outlined what a credit score is, why it’s important, and how to assess and understand the score you’ve currently got. Now, let’s get into some of the top ways that you can improve your credit so you can benefit off of a high credit score and have access to better rates, services, and more!
Maintain Old Debts
Remember when we mentioned that first credit card account you opened straight out of highschool? Keep that account open! Leaving old debts on your credit report has proven to be an easy and effective way to improve or retain your credit score. Creditors appreciate longevity when it comes to credit– the longer your history of using a credit card responsibly, the better. If you paid off your credit card bills regularly for 5 years, it can certainly impact your score positively.
Pay Your Bills on Time
Although this one may seem obvious, it can actually be tricky to pay your bills on time, especially if you have unexpected costs pop up out of nowhere. It’s important to try and make your payments regularly, and budget accordingly so that you’re able to make those payments. In the case that those unexpected costs do show up, try and have an emergency or savings fund readily available so that your credit score doesn’t have to take the hit. We can’t emphasize this enough: paying your bills in a timely matter, well, matters! In fact, your payment history actually accounts for approximately 35% of you credit score when it’s calculated by credit agencies.
Arrange for automatic bill payments
Now that we’ve stressed the importance of paying your bills on time, here’s an easy fix for avoiding late payments: arrange for automatic bill payments! In this time, the digital world is one of your best tools. Online banking is available through many different bank institutions, and on those platforms you can easily set up an online payment system. That way, money will automatically be deducted from your account and paid towards your bills without you having to manually do it, and so that you will never miss a payment again!
Use your available credit more
If you’ve ever noticed that people rarely carry cash or use a debit card any more, there’s a valid reason why.
Increasing the frequency of you credit cards also increases the frequency of paying your bills on time. Your ability to use your credit responsibly is what actually builds your credit up, and having finance management reflected on your card is what lenders love to see. While we do recommend this method to build credit, we also want to caution you to not overspend beyond your means.
Keep in mind that it’s important to stay cautious of what you can afford so that you will be able to pay it off in full! For example, rather than spending the toonie you were going to use for your morning coffee, use your credit card instead. Another motivator to use your credit card more often is that most credit cards offer some kind of incentive Be weary, they offer the incentives to rack up interest rates but if you play it smart you can actually benefit from it! For example, some credit cards offer cash back rewards, or some offer rewards based on a points system.
Either way, the more you use your credit card as opposed to other payment methods, the more you could potentially benefit.
Keep your Credit Card Balance Low
Having a High Card Balance Shows your lender that you may not be too responsible with your money. For example, if you have a $1000 credit limit and spending $999 doesn’t provide a good credit spent to credit available ratio–and that’s what bureaus use to determine your score! Try to keep your credit balance to 25% of your limit if you can, so if you have a $1000 limit, it’s best to keep your balance at around the $250 mark.
Increase your Credit Limit
Similar to the philosophy behind using your credit card more often, you could also request for your creditor to increase your available credit limit. Again, this is not to encourage you to spend more or outside of your budget, but more to prove that you can spend responsibly and not misuse your extended credit. If you utilize your credit correctly, it could definitely build credit in your favour, and move you from the red into the green.
Check Your Credit Report and Monthly Statements
Despite what your score is, this tip is a good practice for everyone to follow.
Once you’re able to get a hand on your credit report, review all of the information recorded thoroughly. Make sure to check if the correct information is listed, whether all the debts are truly yours, and whether there may be inaccurate payment history. Even though the online world is fabulous, it can still be harmful–especially when it comes to your finances.
Although we hope it doesn’t happen to you, there have been instances in which accounts have been attacked and fraud occurs. If that’s the case, be sure to report it so that your credit is not impacted. Review your monthly statements and make sure all the information that has been tracked is correct.
Plus, reviewing your statements can help you visualize where you spend the most and help you budget (so that you don’t miss payments in the future!).
Times to Improve your Credit Score
As we mentioned previously, there is rarely a “bad time” to work on improving your score, and it should realistically be a continual process.
However, if you’re working to build credit out of a red zone, there are optimal times through which you can build credit. For example, if you’ve had a bad credit car loan in London for 12 months or longer, you may want to look into refinancing your car loan so that you can shorten your term, lower your interest, and save more in the long term.
Another time to actively think about improving your credit score is if you are new to the country! When it comes to credit, new immigrants have a fresh start in Canada. In cases like this, they should follow all of the tips we listed above and they’ll build an “excellent” credit rating sooner than they think!
If you’ve had a bad credit score in London and are considering taking measures like increasing your credit limit or using your card more often, make sure it’s at a time in which you can afford to do so. For example, if you think you may be irresponsible with money or unable to resist spending more, simply avoid practices that may encourage increased spending. A great time to increase your credit may be if you’ve received a salary increase, or if you’ve proven to your creditor (and yourself!) for a long period of time that you’ve got a good handle on your finances.
Money matters. What matters more is how and when you spend it. We’ve identified the reasons why your credit score matters, what credit score you should aim for, how to achieve a high credit score, and when to repair a credit score. It’s important that you are always aware of your spending habits, your credit reports, and your credit statements. At the same time, don’t obsess over it! Increasing your credit score takes time, and as long as you are implementing good practices, it will happen naturally. Then, once you’ve built a system that works for you, maintaining your credit will be easy.
If you’re looking to build credit on a car loan, London Bad Credit Car Loans will help you get there. We specialize in helping those with bad credit, as we understand that sometimes having bad credit is out of your control. Whether you’ve had bad credit, no credit, or even declared bankruptcy, we’ll help you start from ground zero and work your way up until your credit health is fully restored. Contact us today to get started!