Credit score

How can I know my credit rating and improve it?

How can I know my credit rating and improve it? | The star

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You can get your credit score for free from Canada's two major credit bureaus, Equifax and TransUnion.You can get your credit score for free from Canada's two major credit bureaus, Equifax and TransUnion.

The bottom line is that if you’re planning to borrow money – like getting a mortgage, for example – it pays to know your score as soon as possible.

A strong credit rating tells lenders that you can repay borrowed money on time. Just as your grades can affect your future opportunities, so can your credit score. Lenders use your score to determine how risky it would be to lend you money for things like a car loan, mortgage, or personal loan.

But there’s little information on what counts as good credit – and if it’s bad, how to raise it. Natasha Macmillan, Director of Everyday Banking at Ratehub.ca, and Melissa Leong, personal finance expert and author of the “Happy Go Money” financial guide, explain what goes into calculating your score and how you can improve it.

First, you can get your credit score for free through Canada’s two major credit bureaus, Equifax and TransUnion, which perform a thorough credit check and calculate scores ranging from 300 to 900. The higher the score, the lower the risk for a lender.

Factors such as payment history and the amount you owe on your credit accounts have a major effect on your credit score.

If you want an exceptional credit score, Macmillan suggests monitoring your credit card usage and making recurring monthly payments on time and in full. According to Macmillan, it’s not enough to make minimum payments because it keeps your credit usage quite high, which can hurt your credit score. The credit utilization rate is a measure of how much you owe – for all your credit products – compared to the total amount of revolving credit you have.

The goal is to keep your credit utilization rate low by using 35% or less of your total credit amount. If your debt is at full capacity all the time, it can hurt your credit score. For example, if you have two credit cards with a $1,000 limit, Macmillan advises trying to keep a balance of no more than $700 on both products.

The number of years you have built your credit history is also important. To improve your score, Leong recommends setting up automatic payments to cover recurring bills.

The bottom line is that if you’re considering borrowing money — like getting a mortgage, for example — it pays to know your score as soon as possible and keep working to improve it.

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