How to Heal an Unhealthy Credit Rating
Your credit rating – or credit score – helps lenders and other organizations determine your potential risk as a borrower. With bruised or bad credit, loans can be difficult to come by and you may have trouble getting insurance, a credit card or, setting up a cell phone account – even landing a particular job.
Fortunately, there are steps you can take to help heal an unhealthy credit rating.
Before you get started, however, it may help you to understand how your credit score is arrived at, and what it tells banks and other major financial institutions about you.
You and Your Credit Report
Every time a company or individual extends credit to you, the details get collected and stored as your personal credit report. In Canada, credit reports are generated by two main credit bureaus: TransUnion and Equifax.
In addition to compiling information from creditors, credit bureaus also use the data in your credit report to assign you a credit rating or score. The higher your credit rating, the more financially reliable you’re considered to be – and the more likely you are to get bank approval for a mortgage loan, HELOC, or home equity loan.
Should you need funding in the meantime, remember that Alpine Credits doesn’t consider your credit, age, or income when approving you for a home equity loan. We focus solely on the equity in your property.
How Your Credit Rating is Scored
Credit reporting agencies never disclose the exact formula they use to calculate credit scores. But since your credit report reflects your credit history, knowing which historical data contributes to your score can make it easier to heal your credit rating and keep it healthy over the long run.
Here are some of the main criteria credit bureaus use to score your credit usage:
- how long it’s been since you established and started using credit,
- how often you apply for credit,
- your credit diversity (the more types of credit you use, the better),
- how timely you are in making your payments,
- whether you carry a balance on your credit cards,
- how close you get to your credit limits, and
- your total outstanding debt
The minimum score required to qualify for a specific loan or type of credit varies from lender to lender. Credit scores typically range from 300 to 900 and in Canada, credit scores are frequently rated as follows:
Excellent = 741-900
Good = 690-740
Average = 660-689
Below Average = 575-659
Poor = 300-574
Tips for Mending an Unhealthy Credit Score
Although your credit rating is derived from a variety of financial factors, not all those factors are given equal weight. Some – like your payment history and overall debt, for example – play much larger roles.
With that in mind, if you want to work toward improving your credit score, you should make a dedicated effort to:
- meet all your debt obligations each month,
- pay at least the minimum amounts due,
- make every payment on time, and
- use as little of your available credit as possible
Consolidating your high-interest debts into a single, low rate loan can also prove an effective tool for healing an unhealthy credit rating.
If you’re a homeowner, Alpine Credits can help you get a home equity loan even if your credit is bruised. You can then use those funds to:
- pay off credit card loans,
- demonstrate greater credit diversity, and
- improve your debt management with the help of fewer or lower monthly payments
All of which can make a real difference when it comes to getting your credit score back on track.
Remember, the credit ratings used by banks to rank borrowers are based on some very narrow parameters. If you have bruised credit, need funding, and own your own home – Alpine Credits can help.
At Alpine Credits, Homeowners Get Approved.