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How to Maintain an Excellent Credit Score in Canada

A credit score is a three-digit number that’s an indicator of your financial status and creditworthiness. The lower your score, the lesser your chances of getting a mortgage, personal loans, or your dream job hence the need to have an excellent credit score.

Maintaining an excellent or good credit score might seem like rocket science if you don’t know what to do. It takes a lot more than meets the eye to keep your score within the acceptable limits. If you have an excellent credit score, then you already know it is one thing to get to the top, and an entirely different matter to stay there. Read on to find out how to maintain or improve your credit score within the shortest possible time.

Your Credit File

Once your application for a bank account or credit card is approved, your information is put in a file. That file is your credit file, and it is your passport into the credit world. Your file contains vital details of your personal information like:

  • Your full name
  • Home address
  • Phone number
  • Employment history
  • Social insurance number

Apart from your details, your credit file also contains other financial information. This information can make or mar your credit score. However, no matter how damaging they might be, time heals all wounds, as is the case here. Information on your file stays for a limited time after which it’s taken off your record. Below is a list of information and their duration on your credit file.

Credit Inquiries – 3 years Minimum

Bankruptcy declaration – 6 years from declaration

Banking info/Credit history/Obtained loans – 6 years after last active date

Court Judgments/garnishments/foreclosures – 6 years past the filing date

Orderly Payment if Debt/Consumer Proposals/Voluntary Deposits – 3 years after settlement or completion date

Improving Your Credit Score

By now, you should have a fair idea of the importance of your credit score in your day-to-day life. If you are one of those who ask the question “what is a good credit score?” Canada has a benchmark between the ranges of 650 to 799. And if you fall within that range, all you need to do is to read further to find out how to maintain your score. However, you shouldn’t despair if you have a score that is lower than 650. Below are a few things you need to understand on your journey to improving your credit score range.

  1. No shortcuts

If you’d like to know how to increase credit scores through the back door, now is the time to look elsewhere. It’s important to understand there are no shortcuts, and good things don’t come easy. Applying a quick-fix can damage your score rather than improve it. The best way to increase your score is to be more responsible with your money and spending. Avoid buying stuff you don’t need or signing up for credit cards you can’t afford.

  1. Reminders

The same way you set an alarm clock to wake you up early each morning, you can set a reminder that alerts you to make payments before they are due. It doesn’t matter the method you take to remind yourself. Making your payments on time is crucial. Paying your bills later, even by one day, is enough to damage your score.

  1. Cut down Debt

Having multiple debts is a major reason many Canadians make late payments and are deep in debt. Why make purchases with your credit card when you can use your debit card? Use your credit report to map out your finances and verify what you owe. Once you’ve done that, you can reduce your debt by paying off the credit with the highest rates first.

  1. Get Help

If you try the above points and you still feel like you’re drowning in an ocean of debt, consider seeking help. You could seek advice from a credit counselor or talk to your creditors who can define a payment plan to offset your debt. Whatever advice or help you get will go a long way to boost your score.

Top Credit Tips

In many instances, mounting debt can be a consequence of a bad financial lifestyle. Below are a few tips to help you manage your money and increase your creditworthiness.

  1. Have a Budget

Having a budget is good, but it’s even better when you stick to it. Sticking to your budget might seem tough, but the dividends are worth it. It is your first line of action to reduce your debt and increase your wealth.

  1. Slash Unnecessary Expenses

If you’re a huge fan of Starbucks, you might consider making your coffee at home. A tall latte can set you back almost C$5, and if you multiply that per annum, that’s close to C$2000. Instead of signing up for a gym membership, consider working out in your home to save money.  If you enjoy eating at expensive restaurants, you can try to make your meals.

Just like coffee at Starbucks, cutting costs on food can save you thousands of dollars in a year. There are so many things you can cut out to lighten your credit load. Multiple subscriptions for Netflix, Amazon, Hulu, and Disney won’t do well for your monthly account statements. Each of these costs might seem insignificant by itself but add them all together and multiply them by one year and you’ll understand how every spend contributes to your credit load.

  1. Have an Emergency Fund

If you want to succeed in the school of life, you need to hope for the best and prepare for the worst. Having an emergency fund stashed somewhere is a key part of a smart financial plan. The rule of thumb is to never touch your emergency fund. Instead, let it sit and collect interest. Your emergency savings will come in handy if you’re out of employment or when the unexpected happens, like a damaged roof or sudden HVAC repairs for your home.

  1. Save for Retirement

It seems a far-off dream to talk about retirement savings with your low credit score, but if someday you’d like to soak in the sun in Hawaii, you should start saving now. You can channel all the money from the expenses you’ve cut out into a retirement fund. The general rule is to save at least 10% of your annual income. By the time you’re ready for retirement, you’d probably be have enough to live on and also debt-free.

Consider: Investment

Let’s face it, maintaining a good credit score on a 9 to 5 for many Canadians is like walking a tightrope. Having good investments or passive income allows you to easily offset credit without staying up at night. Still, your income does not guarantee an excellent credit score, you could earn a lot and still have bad credit history, but it does affect your ability to qualify for a loan. After all, a higher income means you have more money available each month to repay those loans, and that’s what lenders want.

Final thoughts

The important thing to understand is that your credit score is greatly affected by your life’s choices. If you follow the above tips to spend wisely, it will be a small matter to improve or maintain your credit score.

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