How to Hack Your Credit Score

A good credit score is part of good financial health! You can hack your credit score to make it the highest number possible to ensure you get the best interest rates and most flexibility on borrowing to meet your financial goals.

What is a credit score?

They will say your credit score is a measure of your “credit-worthiness”, but it’s really a numerical assessment of how well you handle debt, so a creditor can give you more debt. Credit scores in Canada range from 300 to 900. You can check your credit score and receive your full credit report for free from Borrowell.

A credit score only matters if you’re looking to take on debt. However, since many people need to take on debt for perfectly acceptable reasons, like buying a home or taking out a business loan, you want to protect your credit score.

Not only will a higher credit score help you qualify for lending, but you’ll also get better rates and more flexibility when you borrow. Higher credit scores will let you access better forms of credit (ie. qualifying for lines of credit instead of credit cards) as well as lower interest rates on car loans and mortgages.

What is the perfect credit score in Canada?

In Canada, the “perfect” credit score is 900. However, generally anything over 700 is considered good, and anything over 800 is excellent. Most people have a good or excellent credit score. The average credit score in Canada is 650, and only 20% of Canadians have a credit score below 600.

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• How I Ruined (and Fixed!) My Credit Score
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How to hack your credit score:

How your credit score is calculated exactly is top secret, but there is a general consensus around the main contributing factors.

Some actions count more towards your credit score than others, so if you’re trying to fix bad credit or simply increase your score overall, focus on whatever will have the biggest impact. Here’s how to hack your credit score:

Payment History 35% – 315 points

The most important part of your credit score is whether or not you’re keeping up with your bills. As long as you’re making at least the minimum payments on all the balances you owe, you’re doing a perfect job.

It’s worth noting that making only the minimum payments on your debts probably doesn’t mean you’re doing well financially. You should pay more towards your debt when you can (and that will help your credit score, too, as we see in the next section), but as far as your credit score is concerned, merely keeping up with the bill is more than enough.

Your payment history is the easiest part of your credit score to maintain: all you need to do is pay your bills, and pay them on time.

Hacks:

• If you have any debt behind in payments, or in collections, focus on bringing those up to good standing as fast as possible.
• Set up automatic payments of the minimum payment on each of your debts to happen at least 3-5 days before the due date. This will ensure you never miss a payment, even in the event of a weekend or holiday.

Total Amount Owed and Credit Utilization 30% – 270 points

How much credit you’re actually turning into debt is the second biggest part of your overall credit score. Your credit score fundamentally comes down to being able to get a lot of credit you don’t actually need to use.

If you have a large amount of debt proportional to your income, or you’re regularly living at the limit of your credit cards, it’s going to negatively impact your credit score. Paying down debt is one of the easiest ways to hack your credit score.

Hacks:

• Reduce your overall debt load. Keep making extra payments towards your debt to reduce to the overall balance. Target high-interest debts first, since these are the most expensive to carry and you’ll get the biggest “bang for your buck” paying them off early.
• Reduce your credit utilization. On any type of revolving credit, like credit cards or lines of credit, try to never carry a balance greater than 1/3 of the available credit. For example, if you have a credit card with a $3,000 limit, try not to ring up more than $1,000 on it at a time.
• Apply for more credit. One of the shortest and fastest ways to reduce your credit utilization is to increase your credit limit on a credit card or line of credit or apply for a new one. For example, if you’re carrying a balance of $2,000 on a credit card with a $4,000 limit, your credit utilization is 50%. However, if you call and increase the limit to $8,000, then your utilization will drop to only 25%.

Length of Credit History 15% – 135 points

The next largest determinant of your credit score is your length of credit history. This counts as overall, and on individual accounts. The longer you’ve had a credit account, the better it is for your score.

Hacks:

• Keep on keepin’ on. There’s not much you can do in terms of length of credit history, except wait for time to pass.
• Don’t close long-standing accounts. If you’ve had a credit card for years, continue to keep it open even if you don’t really use it. If there’s no annual fee, let it be!

Remember that this part of your credit score is counting ALL the types of credit you have. Don’t agonize too much over closing a single credit card you’ve had for 10 years when you have other accounts that have also been open for a few years.

Closing a single account is not going to damage your score severely, especially since credit histories stay on your credit report for 6 years after you’ve closed them!

Credit Inquiries 10% – 90 points

The next factor that influences your credit score is how often you apply for credit. These are called credit inquiries. There are two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries are actual applications for credit, like applying for a credit card or a loan. These can lower your score, and they stay on your credit report for as long as 3 years.

Soft inquiries are simply checking your score, or if it’s in good standing. These inquiries do not affect your score. Checking your score with Borrowell is a soft inquiry, and does not impact your credit score.

Hacks:

• If you don’t need credit, don’t apply for it. Hard inquiries stay on your credit report for 3 years, which is a long time for something to linger.

Types of Credit 10% – 90 points

Finally, the last part of your credit score is determined by the types of credit you use. The more variety of credit products you’ve used, the better. Think student loans, car loans, credit cards, line of credit, or a mortgage. Even things like your cellphone bill might appear as revolving credit on your credit report.

Hacks:

• If you currently only have credit cards, try opening a line of credit with your bank. Not only will this give you more credit variety, but it can also give you a low-interest way to consolidate any credit card debt!

Hack your credit score by narrowing your focus

Based on the above, you can see almost a full 2/3’s of your credit score is determined purely from your payment history and credit utilization. Therefore, the fastest shortcut to increasing your credit score is to pay down your debt. Don’t even bother trying to tackle the other three contributing factors to your credit score until you have these two completely under control.

Besides, while you’re working on your payment history and reducing your credit utilization, time is going to pass which will help with your length of credit history! In other words, you’re going to be 80% of the way towards your best score simply by being financially responsible.

I’m doing everything right, why isn’t my credit score perfect?

Surely someone out there must have a perfect 900 credit score, though I’ve never seen it. Truthfully, once you’re over 800, additional points don’t make much of a difference. Hack your credit score as high as you can, and you’ll protect yourself and your finances in the long run!