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Basic Finances for Youth, Part 2: How to Improve Your Credit Score

Many of our older youth have told us that they have tremendous challenges with handling money and understanding basic finances. This new blog series aims to assist youth with these challenges, offering easily understood information on a range of financial topics from credit cards to banking to loans.  We know that for many sports such as hockey, soccer, or basketball, practicing can help improve the team’s scores in future games. When the team practices, the coach often focuses on areas of weakness (penalty shots, free throws, breakaways) and tries to improve them. You can do the same for your credit score. Once you get a copy of your credit report and credit score, you can isolate or figure out what factors are most likely to be negatively affecting your score. Then, you can put effort into improving these areas. With time, your score will also improve. Here are some possible reasons why a person might have a low credit score:

  1. Their account balances are too high – they have a high level of personal debt
  2. They have too much credit available – they have a lot of accounts with limits so high that lenders worry that they can spend (potentially) more than they will be able to pay back
  3. They don’t have a lot of account information – they don’t use credit accounts regularly
  4. They have high balances on their credit accounts – their balances are really high compared to their loan amount

Any one can put effort into improving their credit score and/or maintaining good credit by:

  1. Building a credit history (important for youth) – you might have a low score just because there is no record of you owing and repaying money, if you are in this situation, don’t worry, you can build your credit history up by getting and using a credit card.
  2. Paying your bills on time (note that phone, cable and electricity bills aren’t reported on your credit report but cell phone bills could be)
  3. Paying your bills in full if you can – if you can’t then try to at least pay some of it, more than the minimum amount as indicated by your credit card statement would be preferable
  4. Paying your debts off as quickly as you can – if it is between that new gaming system and paying off that last bit of debt, pay off that debt!
  5.  Spending below instead of over your limit on your credit card – keep your balance below your credit limit as much as you can!
  6. Limiting the number of credit applications you make – too many credit applications at once means too many potential lenders will be asking for your credit report/score in a short period, this can negatively effect your score (when you ask for it yourself it has no affect on your score)

So the take home point – as always in life, a little effort goes a long way and a lot of effort goes even farther! To learn more about improving your credit score click here: http://www.fcac-acfc.gc.ca/eng/resources/publications/budgetMoneyMgmt/CreditReportScore/CheckCreditReportScore-eng.asp#improve


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