It pays to have a strong credit rating when you’re looking to finance your business. Building up your credit score might seem mysterious or confusing, but it doesn’t have to be. Here are seven tips from your friends at ATB (that’s us!) on how to improve your credit rating.
Know your score
The first step to improving your credit score is knowing your number. You can pull your own score from Equifax once a year for free by filling out this form and mailing it off. If you need to know your score more quickly, just head into the nearest ATB branch and we can help you out. (Note that pulling your score frequently can have an effect on the score.)
Banks consider a score of 660 or higher to be good. Higher than 725 is very good and over 760 is excellent. Your credit score is based on five different factors, The biggest two are your past repayment history and your current amount of credit owing. Head here for the full breakdown.
Checking your score also lets you rest easy knowing that someone with a similar name isn’t mixed up on your credit report, which can happen surprisingly often. (If you’re in this situation, contact Equifax to get it sorted out.)
Use your credit more
Your credit score is a little like a muscle: the more you use it, the stronger it gets. In fact, the only way to develop good credit is to exercise your credit.
If you don’t already, consider making most of your day-to-day purchases with a credit card—while sticking to your budget, of course. Two great options here are our Alberta BusinessCardⓇ, which offers a lower interest rate, and the Gold Cash RewardsⓇ MastercardⓇ, which has no annual fee and gives you 1 per cent cash back on all purchases. Rewards like these are another good reason to use a credit card at least some of the time.
Pay your bills on time
Making your payments on time is the simplest, most difficult, most powerful thing you can do to improve your score. Setting up automatic bill payments for your regular expenses, like utilities or a mortgage or your credit card balance, can be extremely helpful here. Make sure any automatic payments will be processed before the minimum payment date.
Also, unlike most personal bills, your cellphone bill has an impact on your credit score. This makes it particularly important to pay on time.
Consider raising your credit limit
Limits on credit cards can be tricky. You can draw all the credit available on a credit card, but that doesn’t mean you should. That’s because using more than 50 per cent of your available balance on a card will lower your credit score. (Going over 75 per cent will lower it faster.) The easiest way around this is to raise your credit limit so you can pay your expenses while staying well below the 50 per cent threshold.
However if you are having trouble keeping your balance down in general, simply raising your credit limit (if available) may not be the best long term solution to improving your score. It’s important to seek advice from your banker to help you achieve your credit goals.
Think about a secured credit card
A secured credit card requires you to make a deposit before you can use it. In return, it can have a much bigger impact on your credit score than a conventional card. This makes it a great tool for those looking to start building their credit (or start over). ATB’s secured Alberta Mastercard® also offers free personal cheques, discounts on car rentals and other handy features.
Leave old debts on your report
When you see your credit report, you might be tempted to wipe previous or old debts off it. Resist this impulse—leaving them on there helps banks understand how you manage debt. A blank record will raise more eyebrows than a few missed payments.
Don’t shy away from creditors
We know that dealing with creditors is about as much fun as snow in April. If you do find yourself in this situation, try to remember that avoiding creditors will ultimately cause more trouble down the line. It might help to think of facing your creditors as an investment in your future growth. Missed payments plus a history of avoiding creditors looks worse on a loan application than missed payments alone.