Rebuilding Your Credit Score (3 Minute Debt Break)

2024-01-26  3 minute read

Lifestyle Debt

Credit scores are important when it comes to financial institutions deciding if they'll lend you money or extend your credit. Think of your credit score as a financial reputation that follows you around, telling banks and lenders if you're good with money. Your credit score reflects your ability to meet certain financial requirements such as qualifying for or paying back a loan or getting better interest rates.

Young business man using credit card shopping online in coffee shop cafe

The makeup of your credit score has many layers. It includes your promptness in paying bills, how much of your available credit you use, your total debt, and how long you've had credit. Each of these elements can sway your credit score positively or negatively, impacting the opportunities available to you in terms of lending and credit terms.

If your credit score isn't quite where you'd like it to be due to past financial decisions, don't worry—it’s not set in stone. There are actionable steps you can take to mend it. Obtaining your credit report from the main reporting agencies, Equifax and TransUnion, is a good starting point. This report might reveal insights into areas that require your attention, such as payment history or debt levels. It also allows you to identify any errors or fraudulent activity that could be unfairly dragging your score down.

Addressing your payment history is essential. It has a significant influence on your credit score, so ensuring that you’re up-to-date on all payments and setting up automatic systems for future bills can be very helpful. If catching up on payments is a challenge, it's important to communicate with your creditors to establish payment plans that can bring your accounts back into good standing.

A diversified credit mix can actually be advantageous for your credit score. Successfully managing a variety of credit accounts, like retail accounts, credit cards, installment loans, finance company accounts, and mortgage loans, can demonstrate to lenders that you’re good at handling different types of credit.
Beyond these steps, fostering sound financial habits is critical. Establishing a well-planned budget that accounts for your income, expenses, and savings can guide your financial decisions and help you prioritize your financial goals. Consistently saving a portion of your income also contributes to a stronger financial foundation, which can reflect positively on your credit score over time.

Improving your credit score is a gradual process that requires a disciplined approach to your finances. With commitment to these practices and a bit of patience, you can start to see improvements in your score, often in less than a year. Remember, this journey can be demanding but it can also significantly enhance your financial wellbeing and reputation with lenders.

Subscribe to MNP 3 Minute Debt Break on your favourite streaming service.

 Listen on Apple Podcasts  Listen on Spotify  Listen on YouTube
 Listen on Google Podcasts  Listen on tune in  Listen on SoundCloud
Consultation icon