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BDO Oakville

233 Robinson Street
Oakville, Ontario L5J 1G5
Phone (289) 644-2985
Fax: (905) 615-1333

(905) 849-4149

How to Get Your Credit Score Back in Shape

Is a less than stellar credit score holding you back? It can be difficult to know what to do in order to get your score back in good shape. As discussed in this podcast, there are a few things that many Canadians are not aware of that can be helpful when trying to rebuild their credit score and get back on track.

Know the score (your credit score, that is)

The first step to dealing with a low credit score is understanding what a credit score is and what your credit score means. The terms credit rating and credit score can get a little muddled sometimes.

A credit score is a three-digit number that is part of your credit report. The number, ranging from 300 (the lowest possible value) to 900 (the highest possible value) is based on things like whether you make payments on time, whether you are close to your credit limit and the types of credit you use. Your credit score can be used by lenders in order to determine whether you are a responsible borrower. You may be surprised to learn that your credit score can also be used by prospective employer to determine whether they should hire you, or a prospective landlord to decide if they’ll approve your lease.

A credit rating is slightly different. A credit rating uses a rating system from one to nine to rate the items on your credit history. Based on this number, lenders can see whether you repay your debts on time and whether you have filed a consumer proposal or filed for bankruptcy.

As discussed in the podcast, it’s also a misconception that checking your own credit score will negatively affect it. Checking your own score is known as a ‘soft hit’ and will not damage your score. In fact, it’s a good idea to check your score to know exactly where you stand. There are a number of ways to do this for free. Your bank may offer this service or you can get a free copy once a year of your credit report from Equifax or TransUnion.

Avoid maxing out your credit cards

Carrying a high balance on your credit cards, but still continuing to pay the minimum balance? You might not realize that high credit utilization may, in part, be to blame for your credit score woes. Credit utilization is the ratio between your credit card balance and your credit card limit. If your utilization is high, it’s generally seen as a warning sign and will typically cause your credit score to dip lower.

But don’t get rid of all your credit cards just yet

High credit utilization is not a good thing when it comes to your credit score, but closing all your accounts and cutting up your credit cards can also be problematic. As discussed in our podcast, credit cards (when used wisely) help you show lenders you know how to use borrow and repay debt responsibly. As a result…

  • Don’t close your only credit card account — having a variety of different types of credit is important.
  • If you have multiple credit cards, don’t close the only credit card with available credit. This will increase your credit utilization ratio and may lower your credit score.
  • Don’t close your oldest credit accounts as it will shorten your credit history.

Instead, work on reducing your credit card balances or paying them in full each month to build a good credit history.

Were you surprised by any of these credit score need-to-know facts covered in our podcast? Join the conversation and share your thoughts with us using hashtags #DebtSolutions #CreditScores

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