Building your credit is not difficult if you know how.
Your credit report is something of an enigma when it comes to explaining how it all works. Broker/Agents work with credit reports on a daily, and even they don’t know how it produces a score. This score is called a beacon score. Beacon scores are produced by an algorithm (computer calculations) on your balances, payments, credit usage, and history on the report. All credit rating agencies have slightly different calculations and lengths of reporting.
The 2 main reporting agencies are:
We are going to focus on the main one used within the brokering industry called Equifax. Brokers/Agents use Equifax to gain your credit score, which will ultimately be used to grant your approval for a mortgage.
see more: the Factors Of Your Approval
It has to do with your balance to available Limits on your credit cards/loans/lines of credit
In order to build/fix your credit score you must have a credit card that does not reach more than 60% of its available limit. This will increase your score. If you have more than 1 credit card above this limit and want to reduce your debt load. It is much wiser to pay down all 3 balances on all three cards to report a lower balance compared to the limit the following month.
Timely repayment matters!
If you miss payments frequently we need to correct this. Furthermore, the amount of payment does not matter. It only matters if it was paid on time. All credit extended to you is reported every 30 days. Every company’s reporting date is different.
Payoff cards/lines of credit; but keep them open. Of course.
If you are thinking of paying off a credit card to increase your score on the bureau, always leave it open. Unfortunately, you will be marketed to use the card, but your overall limits to balances will be reduced as the card keeps reporting. Consequently, you may find after a few years the credit card company or line of credit will be closed out due to inactivity. This rarely happens anymore.
In time everything credit heals
The length of time that you are on the bureau reporting does matter. The longer your credit file is around the better your score can be. This doesn’t imply that you can sit around with bad or unpaid debts and it will increase the score. This happens when the reporting agency drops the debt. This usually takes about 6 years with Equifax.
Pay and/or negotiate derogatory information
These are items that have either not been paid and considered bad debts. In order for your bureau to increase to its best score, you will need to remove bad debts.
Now, where in this post does say to apply for credit to build your credit? This technique only applies to someone with no credit facilities on their bureau. It is someone that is New To Canada, or New to Borrowing. Furthermore, some retail credit application approvals hit your bureau and reduce your score immediately. Banking credit pulls for credit don’t do as much damage but it still happens.
