A credit score essentially reflects how a person has managed their credit in the past. Lenders check credit scores before approving any type of credit to minimize the chances of incurring a loss. People with an excellent track record tend to access huge loans at competitive interest rates. Conversely, people who have a history of late payments or defaults typically fail to secure high-value loans. Moreover, they are charged with exorbitant interest rates to make up for the high credit risk assumed. Why is a Good Credit Score Important? Given the skyrocketing inflation rates, the global economy adopts a hawkish outlook. So, improving your credit score is crucial for availing sufficient credit while keeping the borrowing costs at bay. Economists expect the Bank of Canada to raise benchmark interest rates by half a percentage point next month as inflation peaks at 6%. This comes after a 0.5% hike in key interest rates earlier this month due to the surging inflation levels. Steps To Boost Your Credit Score Improving your credit score is one of the most effective ways to lower your borrowing costs and reduce your interest payment liabilities. Even if you have a bad credit score or no relevant credit history, it’s not too late to start now. Here are four ways in which you can improve your credit rating: 1. Pay Your Bills on Time It is by far the most underrated yet vital step. If you cannot pay off the entire amount borrowed, try to meet the minimum amount due. This way, you can demonstrate an impressive track record of on-time payments, thereby gaining the confidence of the lenders. In addition, you can set up automatic bank mandates if you cannot keep track of all your credit payments together. This way, you can ensure timely payments without attracting penalties. 2. Maintain Multiple Credit Sources Having only one form of credit limits your credit score improvement. Thus, keep at least two credit sources, as it signals high creditworthiness. While credit cards are the most accessible and easily manageable forms of credit, you can also apply for auto loans, personal loans, business loans, and mortgages to boost your score. Credit-builder loans can also help you significantly. 3. Keep In Mind That It Doesn’t Happen Overnight Consistency is vital when it comes to boosting your credit score. It will not help if you pay your bills on time just once or twice, as lenders will view you as an erratic and highly unstable borrower. As the risk of borrowing increases, so does the interest rate at which the funds are deployed while shrinking the total credit amount approved. Paying all your credit bills on time can also help you evade additional late payment charges. 4. Report Inaccuracies in Your Credit Report Immediately Take advantage of free credit monitoring services provided by many fintech platforms to ensure zero discrepancies in your credit reports. In addition, periodic reviews can help you better gauge the factors which have been helping or harming your credit scores. Through these steps, you can effectively boost your credit score within months. As global borrowing costs rise in tandem with inflation, reducing your interest obligations can help you better manage your expenses over time. Want to Learn More?
Download CleverCookie, the first Canadian finance app that teaches you personal finance in an interactive and fun way.