How to improve your credit score

Tips to improve your credit rating now.

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From the November 2013 issue of the magazine.

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1. Check your credit score (all of them): Anyone contemplating a major loan should check their credit score six months to a year in advance to ensure there are no surprises or errors. Don’t wait to the last minute, because it could take several months to correct an error.

Equifax, Experian and TransUnion are the three U.S. credit reporting agencies. Canada has two major credit-reporting agencies, Equifax and TransUnion. This can lead to significant differences in scores. While most of the information collected by the agencies is similar, it’s not uncommon for one bureau to have information not captured by the other, or the same data might be recorded, displayed or stored in different ways. In Canada, the firms synchronize their scores every two months.

2. Pay your bills on time: The first thing any lender wants to know is whether you’ve paid your loans and bills. This is one of the most important factors in a credit score, so always do your best to stay current on your accounts by paying at least the required minimum. Also be aware that paying off a collection account will not remove it from your credit report immediately. It will stay on your report for seven years.

3. Reduce debt: Easier said than done, but paying your debts as quickly as possible is one of the most effective ways to raise your score. Pay off accounts with the highest interest first, while maintaining minimum payments on other accounts.

4. Use your credit card responsibly: Try to keep your credit card balance well below the limit. If your cards are almost maxed out, it suggests you’re overextended and more likely to make late or missed payments. The higher your balance, the more impact it has on your credit score.

5. Build a credit history: If you don’t have a credit card or have never taken out a loan you may have a low score simply because you have no track record of borrowing money and paying it back. If you have a credit card but never use it, you can increase your score by occasionally making purchases and paying them off. That said, if you already have a credit card, don’t open new accounts unless you need them: opening new lines of credit may suggest you’re in financial trouble. And think twice about closing an old account you don’t use anymore, as having a 10-year-old account actually helps you demonstrate a credit history.

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