Credit Improvement Prince Edward Island

Living with bad credit is definitely not ideal for your finances, whether you’re living in Prince Edward Island or anywhere else in Canada. The worse your credit is, the less chance you’ll have of being approved for loans with affordable interest rates. That’s why credit improvement is so important, even if your credit score has not yet reached the point of being bad. In fact, improving your credit is one of the key steps to a healthy financial lifestyle. Looking for help with credit improvement in Prince Edward Island? We have all the information you need.

What is a Credit Score and How is it Calculated?

Your credit score is a tool that P.E.I. lenders use to determine your worthiness for new credit. It’s a three-digit number ranging from 300-900 and is assigned to you when you start using credit products. The closer your score is to 900, the better your approval chances and interest rate will be for any new credit products. There are also 5 different factors that go into the calculation of your score, which we’ve listed below.

Payment History – 35%

The way you pay off your credit products makes up the most significant portion of your credit score calculation. On time payments will cause your score to rise, eventually giving you good credit. Late payments will cause your score to fall, eventually giving you bad credit. Potential lenders can see your payment history and judge your creditworthiness based on it. Obviously, a record of good payments has a positive outcome, while bad payments have the opposite effect.

Paid a bill late? Here’s how you can rebuild your credit

Debts Owed – 30%

The debt you’re already carrying is also very important to the health of your credit, particularly when it comes to revolving credit products (credit cards, lines of credit, HELOCs). That’s because you’ll have a set credit limit or amount (for non-revolving products) with every active credit account listed in your credit report. The more available credit you use up, the further your credit score drops. In addition, having too much outstanding debt can make potential lenders skeptical of your financial ability. For the best results, try to keep your credit utilization at or below 30% of your credit limit.

Length of Account Histories – 15%

How long your credit accounts have been active is another essential factor for credit improvement in Prince Edward Island. The longer you’ve been using say, a credit card, the more valuable it will be, assuming you’ve been making responsible payments. New credit accounts don’t really tell your lender anything when you apply, while a lengthier, responsible credit history shows them you’ll be able to keep up with your potential payments. Avoid applying for too many new credit accounts within short periods of time and see your credit score grow as a result.

Number of Credit Inquiries – 10%

Applying for new credit can decrease your score in another way. Whenever a lender checks your credit report, they’ll be performing a “hard” inquiry. While “soft” inquiries, (done anyone who’s not considering you for credit) do not affect your score, hard inquiries decrease it by a few points. This is another reason why it’s bad to apply for too much new credit within a short period of time. Furthermore, hard inquiries remain listed in your credit report for several years, depending on which credit bureau you look at (3 years with Equifax, 6 years with TransUnion). If a lender sees multiple hard inquiries on your report, all within a short period, it will make them question whether you’re being rejected for some reason and may cause them to deny your application.

Types of Accounts – 10%

It’s also good for your credit score when you have a variety of revolving and non-revolving products listed in your credit report. Again, as long as you’re making timely payments for each product, your credit score will rise and show your potential lenders that you know how to properly handle credit.

Read this to see more ways that your credit types affect your credit score.

What is My Credit Score Range?

It can be tough to know when it’s the right time to apply for new credit. Remember, your credit score can be one of the determining factors toward your interest rate and approval odds, so it’s best to wait until it’s reached the “good” range if it hasn’t already.

Good – Excellent Credit (660-900)

Having good credit is particularly essential when applying for more expensive credit products in Prince Edward Island, such as mortgages and car loans. It tells your lender that you’ve been and will likely continue to be a responsible borrower. Not only will good credit give you better odds of approval, but the resulting lower interest rate could also save you hundreds, even thousands of dollars per year, which you can save or invest in other opportunities.

Fair Credit (560 – 659)

When you’re within the fair credit range, you can still receive approval for most credit products, as this may simply mean you’ve missed a few payments here or there. While some prime lenders may not approve your applications, most alternative and privately funded organizations will. However, your interest rate may end up being slightly higher, costing you more over the life of your credit product.

Wondering if it’s possible to beat your lender’s interest rate? Find out here.

Bad – Terrible Credit (559 and under)

The further you fall into this range, the worse your approval chances and interest rates will become. Needless to say, both those negative effects can be quite hazardous to your financial life. If that’s the case, approval may only come when you apply with a bad credit lender. Otherwise, you’ll have to offer some valuable collateral or get the help of a cosigner to secure your desired credit product.

Want to know how bad credit can affect your daily life? Check out this infographic.

What is a Credit Report and What’s On It?

Your credit report is another tool that lenders may use to find out how responsible you’ll be with new credit in Prince Edward Island. Like your credit score, it’s established by Canada’s credit bureaus as soon as you start using credit products and changes over time in accordance with how you’ve been handling those products. Unlike your score, however, a credit report contains a detailed record of all your credit-related transactions, including the factors listed above. It also contains elements such as:

• Your personal information (name, address, social insurance number, etc.)
• Your credit rating
• Your credit history over a predetermined amount of years
• Your employment record
• Accounts in collections, and other negative banking information (if any)
• Consumer proposals, bankruptcies, and other financial delinquencies (if any)

This being said, some lenders won’t bother to check your credit report prior to approving. However, in case your lender does perform a credit check as part of their application procedure, it’s better to have your report and credit score in the best shape possible. Not to mention, improving your credit has a chain effect that makes your financial life healthier as a whole.

Want to know how long certain information stays on your credit report? Find out here.

What Habits Might Be Ruining My Credit?

Credit improvement can be harder to reach if you don’t understand what’s damaging yours in the first place. Most of these habits are completely avoidable, but when they occur for an extended period of time, reversing that negative effect will be more difficult. To help you avoid these mistakes, we’ve listed some of the main bad habits that may be harming your credit right now:

• Defaulted payments for any credit product
• Missing mortgage payments
• Only making minimum payments for revolving products
• Any financial delinquencies
• Using too much of your available credit limit
• Closing older, more valuable credit accounts
• Not checking for or disputing errors that may be on your credit report
• Scams, fraud, and identity theft

Check out this infographic for even more information about your credit score.

How Can I Improve My Credit On My Own?

Fortunately, credit improvement doesn’t always require professional help. In fact, there are some simple solutions that you can use, including but not limited to:

• Create a budget, factoring in every credit product and unrelated cost you have.
• Get a free copy of your credit report yearly.
• Check your report for errors and dispute them if you find any.
• Collect more income, if possible (extra shifts, overtime, ask for a raise, etc.)
• Cut down on unnecessary expenses
• Pay for a credit monitoring service if you’re worried about fraud or identity theft.
• Pay all your active credit accounts on time and in full whenever possible.

What if I Can’t Improve My Credit By Myself?

Of course, your credit may have reached the point when simple improvement methods are insufficient. While this is nothing to be ashamed of, it’s still very important to find a solution if you want to continue using credit products in the future. Don’t worry, plenty of these professional solutions are offered with Loans Canada, including:

• Credit counselling
• Secured credit cards
• Credit rehab savings program
• Debt consolidation loans and programs
• Debt settlement

Frequently Asked Questions

How Can Loans Canada Help Me?

Here at Loans Canada, helping with credit improvement in Prince Edward Island is just one of our many financial specialties. If you’re looking to improve your credit in Prince Edward Island, we can help!