New Year Debt Relief: How to Interpret Your Credit ScoreJan 31, 2018
Hoping to find debt relief in 2018? You’re in good company! Canadians have listed paying down debt as their top financial priority again this year.
But, in order to accomplish your goals, you need more than hope or a new year’s resolution.
In our first January podcast we talked about how adjusting your attitude towards your debt can give you the motivation you need to make necessary changes. Once you have a new outlook, it’s time to get practical.
One thing you can do, if you want to reduce your debt this year, is make sure you know your credit score. You should understand how if effects your finances and how it should affect your debt relief efforts.
What does your credit score say about you?
In short, your credit score tells lenders how risky it is to lend you credit, based on your financial history. The two main credit-reporting agencies in Canada are Equifax and TransUnion, who collect data of each person’s credit and payment history. When you apply for new credit, such as a mortgage, loan or credit card, the credit agency releases this report, with your consent. From there, the lender can see how much credit you qualify for, and whether you will be able to repay the full amount of the loan, based on your history. Read more about your credit report here.
5 ways to improve your credit score
A higher credit rating can mean you’ll pay less interest on new forms of credit because you’ll be considered a lower risk of defaulting. Here are a few ways you can improve your credit score over time:
- Don’t miss payments. Missing a payment can damage your credit and lead to higher interest charges. Always ensure your bills are paid in full and on time each month. You can do this by automating your bills.
- Keep your credit balances low. If you’re not paying off your credit cards in full each month, ensure you’re not using more than 35 per cent of the total available credit. This can be a sign of financial difficulty and can make lenders see you as a risk.
- Look into your options. If you feel like you’re not able to make progress with your debt, look into your debt relief options using this calculator, or speak to a debt professional.
- Pay more than minimum. Interest-only debt payments will keep you caught in a revolving cycle. It’s better to assign all extra money to your highest debt while maintaining minimum payments on all others.
- Stick to a budget. Budgeting is essential to any financial plan. To get started, download a budgeting app or print out this worksheet. A budget can help you keep your spending, saving and expenses on target each month.
In this week’s podcast, Practical Ways to Change Your Debt Mindset, our Licensed Insolvency Trustees discuss credit scores, the mortgage stress-test, credit card debt and the benefits of a flexible budget. Check it out!