The Fastest Way to Improve Your Credit

OSFI Interim Update

A good credit score can open many doors, while a bad score will shut them tight.  A poor credit score will not only prevent you from getting the best mortgage rate, it may prevent you from getting approved at all.

Credit scores are controlled by Equifax and Trans Union.  These 2 firms each maintain your credit record itemizing your payment history on each credit card, loan and line of credit.  Their records extend back 7 years and will show a missed payment from 6 ½ years ago to anyone with access.  The good news is that older payments have a lesser impact on your overall score.

Of course the best way to maintain a good credit score is to make your payments on time.  It doesn’t matter how much you pay just so long as it’s at least the minimum specified by your creditor.  There’s nothing you can do about past missed payments other than to keep your nose clean going forward.  The older the missed payment becomes the lesser the impact it will have on your credit score.  Although this will improve your score in time it will do you little good if you need a better score sooner rather than later.

The fastest way to improve your credit score is to reduce your utilization.  The Credit Bureau defines your utilization as the amount you have outstanding on your revolving trades divided by their credit limits.  If you had a visa card with a $10,000 limit and owed $10,000 then your utilization would be 100%.  On the other hand if you had a $0 balance then your utilization would be 0% – much better.  The logic being that if you are maxed out on all your cards and lines of credit then you may be in financial trouble and not in a good position to pay back your creditors.

There are 2 ways to improve your utilization; pay down your revolving accounts or open a new unused revolving account.  Either of these actions will immediately improve your utilization and your credit score.  Just be aware that it typically takes 30 days for the credit bureau to reflect your credit activity.  So if you lower your utilization today it will take approximately 30 days before your score will improve.

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