Fair Credit

How to take an average or fair credit score towards good

The good thing about credit is that it can be improved. If you currently have bad credit, you are not stuck with it forever. You can work on better financial habits, pay off your debts, and ultimately rebuild your credit.

What is a credit rating?

In general, when someone has bad credit, it means that a person also has bad credit, which affects their ability to get the financial products they need. A credit score is a 3-digit number created by a credit bureau (in Canada, we have 2: Equifax and TransUnion). This rating represents an individual’s creditworthiness, that is, their likelihood of being approved for a loan or new credit. The two credit bureaus calculate your credit rating based on how you pay back the credit. If you have never used credit or have never had a loan, then you have no credit rating. Five main factors are used when calculating your credit rating:

Payment history (35%)

Have you missed credit card payments or been late to make a loan payment? If so, your credit rating has been negatively affected. On the other hand, if you always make your credit and loan payments on time, your credit rating is probably good, based on your other financial habits.

Amount of debt (30%)

We all have at least some debt, be it a mortgage or a filled credit card. However, those who carry big debt month by month are more likely to have bad credit. Generally, this factor is most affected by personal and consumer debts. People who constantly use more than 30% of their available credit limit are more likely to have bad credit.

Credit duration (15%)

This factor has less weight in the calculation of your credit rating, but it is also probably the easiest factor to change, both negatively and positively. In other words, the more you have a long-standing credit account that has been used responsibly, the better your credit rating will be. Much of your creditworthiness is the responsible use of credit over time. Closing a credit account that you have had for years is not a good idea, as you will essentially be eliminating that part of your credit history, thus making your credit history shorter. Long and healthy credit history should be your number one credit goal.

Diversity of accounts (10%)

The average consumer generally has no idea that the types of credit accounts they use to affect their credit rating. Having multiple types of active credit accounts will help give your credit rating a boost. If the credit card is the only type of account you’ve ever had, consider taking out a personal loan to add a new type of account to your credit history.

New surveys (10%)

Each time a credit card company or lender investigates your credit, your rating will drop by a few points. Severe inquiries are when a credit company or lender checks your credit report to assess your creditworthiness to obtain a loan or a new line of credit. Applications for new credit cards or a new loan in a space-time yard will also affect your credit rating. Several surveys at the same time mean that you are often rejected or borrowed a lot of credit. It is not good quality.

Canadian Credit Score Margins

Now that we know what a credit score is let’s take a look at the ranges of credit scores in Canada. In Canada, TransUnion and Equifax offer consumers credit ratings ranging from 300 to 900. Depending on your financial habits and credit history, your credit score will fall somewhere within this range.

  • 300 – 559 = Low
  • 560 – 659 = fair
  • 660 – 724 = Good
  • 725 – 759 = Very good
  • 760 + = Excellent

Does My Bad Credit Affect My Life?

Your credit rating is the spine of your monetary existence. A high credit score is ideal for your financial life, and a low credit score is bad for your financial life. So yes, your bad credit affects your life, personally and financially. Fair credit score can prevent you from:

  • Get a new credit card
  • Get the approval of a loan you need to cover the cost of something important
  • Buying the home of your dreams
  • The location of an apartment
  • Obtain approval for vehicle financing
  • Be chosen for a job you want

How can I improve my credit rating?

Everyone wants to know how to improve their credit rating, and we fully understand why. Good credit is so important, especially if you have financial goals and life dreams that you want to fulfill. Being a homeowner is something that the majority of Canadians want, but it requires good credit. Let’s take a look at what you can do to improve your credit rating and accomplish all of your goals, both financially and personally.

Conquer your unnecessary debts

First, create a budget, stop using your credit cards to buy things you don’t need, and pay off any consumer debt you have. Debts cause all kinds of unnecessary financial problems, including bad credit. Paying off debt and improving your credit go hand in hand. As you pay off your debt, your credit will start to improve.

Start making all your payments on time

As we have said before and will repeat, missed, or late payments will negatively affect your credit rating and should be avoided at all costs.

Track your credit

Canadians have access to one free credit report per year from the two credit bureaus. After that, you will have to pay for additional credit reports and credit scores. But, if improving your credit is important to you, you should consider asking for a copy of your credit report every six months. You should also consider paying for a credit monitoring service. Either way, keeping track of your credit will help you improve your overall financial health.

Be patient

Improving your credit rating will take time, period. Patience and hard work will allow you to improve your Fair credit score, conquer your debts, and reach the highest credit score you have ever dreamed of.

Are you looking for other ways to improve your credit?

If you are looking for more ways to improve your credit rating or want to give a boost to your credit rating, check out our Savings and Credit Rehabilitation Loan and a designated credit card for people who want to improve their credit.