Tips on How to Improve your Credit Score – Part 2

Now that we are somewhat educated on what exactly a credit score is and how it impacts our financial lives, we will now focus on what exactly we can do to either maintain our good credit score or get out of a bad situation. Note that not all debt is created equally, and precedence should be given to those debts that will have a hefty effect on you and which will cost you more to haul.


Credit Cards:

Conceivably the most common form of debt that we all carry and use on a daily basis is a credit card. Credit cards will offer a limit, or high credit, which states how much the credit card company is offering to lend you. Say you have a credit card with a $10,000 limit, not bad! The average cost of borrowing for credit cards is roughly 19.99% but can be more depending on your credit score or simply on what they offer. In this example, let’s say that you spent $5,000 on your credit card which gives you the ability to “borrow” at least $5,000 more. What are you liable to pay and how will it affect you?


All credit cards have a minimum payment requirement which, if not paid, will reflect negatively on your credit report. Generally speaking, this minimum requirement is between 1-3%, not that much! However, don’t think you beat the system by just paying your minimum payments because if you do, the system beat you! Yes, it is true that you will have a positive payment history on your credit report with an R1 rating. However, credit card interest is compounding and on every dollar that you owe, interest continues to accrue, month over month over month, etc.


So, although you may have a positive payment history, you will continue to rack up a bill that far exceeds your $10,000 limit so be careful! Therefore, make sure to pay more than your minimum payment each month to lower the interest that accumulates on your card. How much you ask? If you pay your statement balance off that is owing at the end of each month, you will be in good hands!


Lines of Credit:

If you have a line of credit, you then have access to funds that you only pay on when you draw upon. For example, if you have a line of credit for $20,000 and you use $5,000, you are only paying interest on the $5,000 that you are using with access to the remaining funds as you please. In general, the average Annual Percentage Rate (APR) on these lines of credits can range between 4-10%, depending on your credit. Aha! So, if the rates are less for a line of credit than they are for a credit card, can you use this money to pay off your credit card? Drum roll, please…..YES! Now you’re feeling it. Understanding the cost of money is what you need to do to improve and build on your credit score. As long as you don’t borrow more than you are capable of paying back, you are on track to establishing positive credit.


Payday Loans:

As a general rule, this is something that you want to stay away from, at almost all costs. The interest rates are extremely high when calculated over a 52-week period and should only be used as a last resort. Although you have access to quick cash, the end game will put you in a worse situation than you are in now, so you’re essentially pushing off the inevitable. In addition, borrowing and paying your payday loans will also not help you build your credit as they are not reported to the credit bureaus. Nevertheless, what can you do if you are using payday loans and you simply want to break out of the cycle, all while building your credit? You guessed it (Hopefully?), an instalment loan.


Instalment Loans:

Instalment loans, like those offered at Magical Credit, are your path to break out of this cycle and to help you in general build your credit if you need it. These loans, typically ranging from $500 – $20,000, are used for a variety of reasons and especially to help you disrupt the payday loan cycle. The way they work is quite simple. You receive the amount that you are looking for and instead of paying it back in large lumps over a short period of time, you have between 6 months and 5 years to pay it off, all while building your credit simultaneously.


When researching instalment loans, make sure that you have the ability to pay it off with no penalties, saving you in interest throughout the loan. Using a reputable lender like Magical Credit can offer you the relief you need as well as get you on the right path to financial relief and ease.


So now that you understand the importance of credit and what you need to do to build it, what are you waiting for, start your journey!

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Kevin Silver

Kevin Silver is the Chief Risk Officer at Magical Credit, which specializes in instalment lending throughout Canada. He has spent many years gaining deep financial insight in the lending industry and loves to help others increase their financial literacy in today’s world. With an MBA in Global Management as well as a Masters in Industrial and Organizational Psychology, Kevin is able to synthesize knowledge and help educate others. He has written many blogs related to finance and has helped people take control of their lives.