By the Sun Life team
Why should you care about your credit rating? What to do to have a suitable file? Please find out how it all works and what to do to maintain a good rating.
How to improve your credit rating?
Want to boost your credit rating? Alexandre Demets, the financial security advisor at Sun Life, has seven tips for you.
- Limit the number of credit cards, accounts and loans you have
Even when balances are zero, your funds remain on the radar of financial institutions.
“People wonder why they are refused a loan when they make their payments religiously, explains Mr Demets. It is that the lender considers these accounts as a risk. The applicant could refill his credit cards at any time. ยป - Set your credit limits wisely
Tip: Your credit card limit should be one month’s salary. This way, you are not likely to approach it.
The most significant risk factor is a high debt ratio when you have a bad credit score. - Regularly pay off your debts
Mr Demets sees too many well-meaning people giving up when making the total monthly payment becomes challenging. Can’t pay off your credit card balance in full? Make at least the minimum payment.
Let’s say you owe $1,000 at a rate of 10%. Added to this is another debt of the same amount but at 20%. In this case, it may be better to focus on the second, which costs you more.
Note that credit card rules have changed since August 1, 2019. The minimum payment is now 2.5% of the balance. This proportion will increase by 0.5% per year until 2025. For cards issued after August 1, 2019, the minimum payment is 5%. And don’t forget to factor your credit card payments into your budget!
Four smart ways to stay out of credit card debt
- Create a flexible budget that works for you
We all know that making a budget and sticking to it is the basis of financial health. If you have debt, make fixed payments each month. Do you have a surplus? You can spoil yourself. You can also save for an important project, such as retirement, buying a house or the birth of a child.
Use our budget calculator to see where your money is going
Six steps for a well-thought-out confinement budget
- Don’t apply for too many loans at once
If you multiply loan applications in a short period, lenders will sound the alarm. And it could hurt your credit rating. - Check your credit report regularly
“The first reason to do so is that errors can slip in,” recalls Mr Demets. To avoid the embarrassment of being refused a loan, monitor your credit report. Your information may not have been updated correctly.
It is also essential to check your credit report for prevention. You might find errors there. You might even find that you have been the victim of identity theft.
- Think carefully before becoming a co-signer for a loved one
Being a co-signer of a loan is serious. If the borrower goes bankrupt, you must repay their debt.
You might think that’s a noble gesture. But first, make sure that the person concerned is reliable.
What impact can COVID-19 have on a credit score?
Have you had your mortgage payments deferred due to COVID-19? In this case, follow your credit report closely. According to Equifax, this deferral will not affect your rating if it is part of an arrangement with your lender.
Already have a good credit rating? Now is the time to think about an emergency fund.
That’s it, you’ve paid off all your debts. Next step: build an emergency fund.
Mr Demets suggests putting the equivalent of 3 months of current expenses in a tax-free savings account (TFSA). This money will help you if you lose your job. However, the advisor admits that for most people, the realistic goal would be $1,000 to $1,500. A couple with children can aim for $3,000 to $5,000.
Six beneficial ways to use your TFSA
TFSA: How to Avoid 4 Common Mistakes
A high savings goal can indeed be daunting. Better to proceed in stages. Look at your income and expenses, then figure out how much you can set aside now. You may be able to save only $20 or even $10 a week for now. It’s a good starting point.
How to build your emergency fund
Get help from a finance professional
If your credit rating is poor, you can constantly improve it. The r
