Achieving a perfect credit score is a goal that many individuals wish to accomplish. While obtaining impeccable credit isn’t necessary to maintain proper financial health, it does reflect well on you when you decide to inquire about large loans for items such as new vehicles or a home loan.
What is Considered a “Perfect” Credit Score?
If you’re wondering how to get a perfect credit score in Canada, it’s essential that you take the time to educate yourself on how lenders break down a person’s rating.
Each consumer’s credit is broken down into five categories, ranging from Poor to Exceptional.
Here’s a simple breakdown of the range of credit score:
- Exceptional: 800+
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Studies show that Canada’s average credit score is approximately 650, although 61% of Canadians do have a very good rating of 750 and above.
How is Your Credit Score Broken Down?
When determining your credit score, the bureaus look at four primary categories. The first is your payment history, which makes up approximately 35% of your rating. Credit utilization makes up the second-largest portion and accounts for about 30% of your overall rating.
The final three considerations include the length of time that your credit line has been opened, which accounts for approximately 15% of your overall score, while your new accounts each make up about 10% of your score.
It’s important to note that the final two categories can and will vary. This may also appear on your report as new hard/soft inquires as well.
4 Ways to Achieve the Highest Credit Score Possible
Improving your credit score is achievable in a matter of a few months if you put in the time and the effort to get it done. However, if you are starting with a poor or fair history of your finances, you’ll want to keep in mind that it will take some time and serious work to help you reach that goal.
The good news? Achieving an excellent rating isn’t nearly as difficult as some people think. Here are four ways to help you out:
1. You Need to Have a Completely Clean Credit Report
If your goal is to have perfect credit score, you need to have zero collections reported to the financial rating agencies, which means no late payments on any of your accounts.
Since many individuals may have made some late payments, this is one of the biggest factors that’s holding most people back from obtaining perfect rating. That’s because a hard inquiry remains on your report for approximately 36 months.
2. Minimize or Eliminate Your Credit Card Debt
Credit card debt is a significant contributor to your financial standing. You’ll want to spread out the use of your cards and ensure that you pay them off at the end of each month.
So, if you use cards to pay for groceries twice a month, you want to make sure you pay off that balance before your next payment is due.
You can also call your bank and ask if they will reduce the interest rates on your credit card. Banks don’t want to loss very loyal customers who have a longstanding relationship with them. Picking up the phone and making an inquiry can’t hurt. It may also result in an overall reduction of the interest rate that your bank changes you by 1-2% which can add up to a lot of money back in your pocket. Reducing the amount you pay in interest, will result in reducing the amount you owe on your credit cards.
Another options to consider is to open a new account with a new financial institution and transfer the amount you currently owe to the new card. This can potently result in huge savings if you make payments on time and work on reducing the overall balance you owe.
3. Don’t Close Old Accounts
The age of your credit history plays a more prominent role in your rating than you may think. While it may only account for 15% of your total score, your accounts’ age shows new lenders that you are a trustworthy, responsible individual. With a long financial history, it will prove that you are a low-risk borrower.
So, while you may have a line of credit that you opened years ago but hardly ever use, you don’t want to close out that account. Instead, designate that card for a specific use to keep it active and make sure you pay off the balance each month to continue working towards improving your financial standing.
While the idea of keeping an account open may not sound right especially if you have not used it in a while, it can also harm your credit score in another way, it increases your overall utilization rates.
We highly recommend that you keep your finance accounts open if you can, even if you don’t need or presently use these cards. It will help you maintain good rating and be beneficial when you’re planning to borrow money within the next few months.
4. Diversify Your Credit Lines
When working on improving your financial standing, many consumers believe that you need to open multiple credit cards at strategic points throughout the years. Unfortunately, that doesn’t do much to help you diversify your credit lines, which is what really matters when trying to attain improve your credit rating.
Diversifying your credit requires you to consider opening various financing accounts, including:
- Student loans
- Home loans
- Auto loans
- Personal loans, etc.
Maintaining multiple lines of credit proves to lenders that you can manage and can pay back different types of loans on time. Diversifying your credit mix can help you reach excellent credit score status.
Just remember, there will be a hard inquiry with every new loan you apply for so be careful not to open to many accounts at the same time.
Achieving the Highest Credit Score Takes Time
Obtaining a perfect credit score is doable and a smart goal to reach for. However, if you’re only just beginning to build your credit, it is vital to understand that going from a low score to a perfect 900 can and will take significant time.
That’s because you’re going to need to tweak your profile quite a bit to ensure you are not only attaining a good mix of lines of credit but are making regular, on-time payments. So, instead of focusing on building the perfect credit score as quickly as you can, focus on building a stable, healthy credit report.