A mathematical algorithm is used to determine credit scores based on several criteria reported by your creditors, lenders and service providers, including late payments, current debts, length of time an account has been open, types of credit, number of searches made on your credit file, and new applications for credit.

WHAT YOU NEED TO KNOW – HOW TO IMPROVE YOUR SCORE

1. Know your credit score: Your credit score affects the interest rate on a loan, so it’s important to know your score, and how you can improve it. Your credit score numbers tell lenders how likely it is that you will repay a loan.

2. Take caution in resolving unpaid debts or bankruptcy: Speak with a mortgage expert before you seek any credit counselling or bankruptcy advice. We can help you with a combined solution by getting you the financing you need, and a solution to resolve your credit issues at the same time – with one soft search that will have minimal impact on your credit score.

3. Avoid too many searches: Each time a creditor or lender searches your credit file, your credit score drops a little. As you can imagine, when there are multiple searches in a short period of time, this can have a damaging effect on your credit score. All searches on your file are noted and become part of your credit history – so too many searches will raise a red flag with any future lenders that pull your credit history. Speak to a mortgage expert for the right solutions that will cause little or no damage to your credit score.

4. Pay your debts on time: You may feel that paying your bills a day or two late is not a big deal – but in some cases a few days becomes a week – or a month or two behind. The fact is that late payments do have a negative effect on our credit scores. Creditors, lenders, and service providers regularly share key data with Equifax and TransUnion, so late payment information makes its way to your credit file and will lower your credit score. Schedule your payments in your calendar to ensure that you are prepared for them.

5. Avoid high credit balances: If you believe, as long as you pay your credit cards on time, your credit will not suffer. This is a big mistake! While it’s absolutely important to make your payments on time, another factor that can lower your score is by keeping high credit balances on your cards. If your card balance is always riding close to the maximum credit limit – it may be interpreted that you do not manage credit well, and are having difficulty paying down the balance. Always aim to keep your credit cards at less than half your credit limit.

6. Pay more than the required minimum: Creditors are in the business of lending money for a profit in the form of interest. As a result, they will require only a minimum payment from you each month in order to keep your credit card in good standing. This is great for them – not so good your credit score or your long-term financial health. Always plan to pay more than your required minimum payment. This will reduce the length of time it takes to pay down your debt – and reduces the interest cost you will incur. In addition, it will boost your credit score – as it will be interpreted that you manage your credit well.