There are several easy steps to take to ensure you have a high credit (beacon) score and always stay in control of your finances.
Your credit score (also known as your beacon score) is a three-digit number that lenders use to predict your credit worthiness. Scores can range from 300 to 900 points. The higher the score the better. Credit reporting agencies calculate your score based on your payment history, how much you owe, how long you have had credit and how often you apply for new credit. In general, the higher your score, the lower the risk for the lender that you will become delinquent in your bill payments.

Since your credit score and credit report are constantly changing, it’s important to review them on a regular basis — at least once a year. There are two main credit reporting agencies in Canada; Equifax and TransUnion. It’s a good idea to check your records with both companies. When you request your own credit report, it won’t affect your score and by checking it, you will be able to identify and correct any inaccurate information, detect any fraudulent activity and gauge your overall credit health.

Components of the credit score

• Payment History (35 percent): When you pay your bills on time, it’s a positive mark on your account. You receive bonus points every year you continue to pay your accounts on time. You will lose points if you have a late payment, collections, foreclosure or a judgement placed on your report.

• Utilization (30 percent): This refers to the balances you have on each credit card and is the fastest way to increase your credit score in a short period of time. You get the maximum amount of points when your balance is one percent to nine percent of your available credit line. You gain points for every 10 percent you reduce your debt — if you go from a balance of 80 percent to 40 percent of your credit line, you will also gain points. It’s also important that you only have balances on about half of your credit cards.

• History (15 percent): You receive points every year that you have a positive trade line open.

• Inquiries (10 percent): If you have too many inquiries you will lose points in your score. Inquires remain on your report for two years, however they stop deducting points for those inquiries after one year.

• Mix credit (10 percent): This refers to the different types of credit: mortgages, car loans, credit cards, student loans, etc. You will gain points by diversifying your credit file and using another type of credit.

Timeline

Credit bureaus update your scores daily based upon the information given by your creditors. If you substantially pay down your debt, make sure you have a good mix of credit, pay on time and don’t open too many new lines of credit at once.

How to build up credit history easy and fast

• Open one or two credit cards. If you can’t get approved for a credit card, try a secured card, which is a credit card that requires a small savings account that will usually secure the entire credit line on your new card.

• Use your credit card to make daily purchases instead of using cash or a debit card. Don’t use it as a form of financing, but as way of payment. Pay the total balance at the end of the month to build up your credit and avoid paying interest.

• Always pay your other bills on time, especially your cell phone. Cell phone companies are now reporting your cell phone bill to the credit bureaus so make sure you pay them on time.

If you are planning to buy a new home or getting a loan

If you are planning on applying for a mortgage or a loan, it’s especially important to check your report a few months in advance. To maintain a good credit score or if your score is lower than you would like, here are some tips on how you can raise it.

• Pay all your bills on time: Paying late or going into collection can reduce your score.

• Make sure your credit limit appears: If your credit card limits aren’t listed, your cards are assumed to be maxed out, which damages your credit score.

• Stay within your credit limit: Staying below 65 percent of your limit will help you maintain a higher credit score.

• Pay past due accounts: Delinquent accounts reduce your score more than anything else. Pay these accounts first.

• Don’t close credit cards: Credit score software totals your available credit limits across all your cards. If you close an old card, you will suddenly have a lower total limit, which means your credit-to-debt ratio is higher. This drives down your score. Only close old cards if you have no self-control on your spending.

• Keep old credit cards active: The longer you have had an account open, the less likely you are to default on it, and the higher your credit score. But it’s not enough to simply keep old accounts open, you have to use the card, even if it’s only once every six months.

• Don’t apply for credit you don’t need: Too many inquires over a short period can reduce your score. When using a mortgage expert, only one credit report will be downloaded, and it can be used to go to various lenders.

• Correct any inaccuracies on your credit report: This can increase your score.

If you have any questions about your credit score or how you can improve it, talk to a mortgage expert. They will be happy to help.