CREDIT SOLUTION
HOW PRIORITIZING DEBT CAN IMPROVE YOUR CREDIT SCORE

Rebuilding Credit in BC, Canada: The Importance of Prioritizing Debt

From unforeseen expenses and overspending to medical emergencies, income loss, and more, there are many reasons why Canadians find themselves in debt. Simply paying the minimum balances will only incur expensive interest charges. You can also damage your credit score in the process, making it harder to get approved for loans.
Understanding how to prioritize your debt repayment and following through with a plan is a better strategy.

What’s the Difference Between Installment and Revolving Credit in BC?

When developing your debt repayment strategy, it’s important to understand the differences between installment and revolving credit:
 
Installment credit accounts have a predetermined length and end date, which is called a term. The loan agreement also includes an amortization schedule that shows how the principal amount reduces as installment payments are made. Examples of installment credit include mortgages, auto loans, student loans, and personal loans.
Revolving credit accounts have a set credit limit, which is the maximum amount that you can borrow. As you repay the outstanding balance, you can borrow against the loan again. Balances can be paid in full at the end of each billing cycle or carried over from one month to the next. When you carry a balance on a revolving account, you will pay interest (unless it’s a 0% loan). Examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit.
To make the biggest impact on your credit score, it’s important to prioritize paying down any revolving debts first before tackling your installment account balances.

How Prioritizing Revolving Debts Rebuilds Credit Scores in BC
 

The balances on installment accounts and revolving accounts impact your score, but the latter weighs more heavily since credit utilization ratios are based on revolving credit. Essentially, your utilization ratio is the amount of revolving credit that you are currently using divided by the total amount of revolving credit that you have available.
For example, if you have $10,000 in available credit spread across two credit cards with a combined balance of $5,000, your utilization ratio is 50% – which means you are using half of your total available credit.
When calculating credit ratings, your utilization ratio makes up 30% of your score. If your ratio is high, it lowers your overall rating and decreases your chances of a loan approval. But by paying down the balances on your credit cards, personal lines of credit, and home equity lines of credit, you’ll lower your utilization ratio, which can positively impact your credit and show lenders that you are a responsible borrower.
 

 Repair Bad Credit With TransCanada Finance

If you are looking to rebuild your credit rating or rebound from past mistakes, our team at TransCanada Finance is passionate about connecting our customers to the information they need. We’ll help you understand your credit score and provide ways to improve it so you can unlock future financing opportunities.
To learn more, contact our team today.
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