Even With Damaged Credit, Karma Can be Beat!

Tips for improving your credit score and credit rating

By Melissa Jackson

Are you struggling with past financial mistakes and trying to change your credit karma? Defined informally, karma means ‘destiny’ or ‘fate,’ and both result from a cause. When referring to your credit, karma is based on your past credit behaviour. For instance, if you made your payments on time, how much you’ve borrowed, and how often you applied for credit – in other words, your credit score or credit rating. If bad karma or credit problems have been damaging your financial future, we’ve got tips and information to help you improve your credit rating and money skills.

Personal Karma and Credit Karma – What’s the Difference?

Much like negative actions and behaviours are thought to impact an individual’s fate or personal karma, credit karma is impacted by negative financial behaviours. For example, carrying a heavy debt load, making late or partial payments, skipping payments, and/or applying for credit you don’t really need aren’t doing your credit rating – i.e. your credit karma – or financial future any favours. But sometimes the line between personal karma and credit karma can be blurred.

Take, for example, co-signing a cell phone contract or car loan for a friend with bad credit. Helping out your friend when they need it most is good for your karma, but credit-wise, if they don’t make all of their payments on time and in full as they agreed to do, your good deed can give you bad credit karma because their poor payment history will also reflect on your credit report.

When it comes time to take out a loan for a major purchase – a mortgage or car loan, for example – having a poor credit history and low credit score can make it very difficult to get the loan approved at the interest rate you can afford. You may find that your past has caught up with you and karma is making your financial future look murky.

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Take Steps to Improve Your Credit Rating and Karma

If your credit rating is at a low point, all is not lost. There are steps that you can take that will help you improve it and reverse your karma. Make sure you do your research and beware of any offers from credit consultants to fix your credit score fast or remove items from your credit report. There are no fast credit score fixes and no one can remove accurate yet negative information from your credit report. Consultants who offer this service could be fraudulent, or they might be charging a fee to do what you can do for free yourself. Here are some legitimate, free ways you can improve your credit score.

• Make Your Payments On Time
  Your payment history is a major factor influencing your credit score. Potential lenders look at your payment history to make sure you can be relied upon to pay your bills on time. A consistent history of reliably making payments shows lenders that you’re likely to continue that habit in the future. To help you stay on track and beat bad karma, mark due dates on your calendar and set up automatic payments. For payments that aren’t automated, use calendar or phone alerts to remind you.
• Reduce Your Debt Load
  Lenders will look at your overall debt load to make sure you can handle more borrowing. This is known as your credit utilization ratio, or how much of your credit you’re using out of the total amount of credit available to you. For this number, lower is better, as it shows you owe less money. If you want the best score possible, try not to use more than 30 percent of your available credit. To beat bad karma in this area, focus on paying down your existing debt and keeping it paid off. This will also help you escape the credit card trap.
• Balance Debt Repayment with Savings
  This may seem counter intuitive but try to avoid pouring every single extra cent into your debts. Savings is the secret weapon against debt and will turn your karma around. Remember, an emergency fund is crucial to ensure you don’t have to fall back on credit or borrowing for unexpected expenses. When they occur, you’ll have cash on hand to help pay for them.
• Be Aware of Fraud Risks
  If you have unused credit card accounts that are still open, keep in mind that just because you’re no long using them, you might get hit with bad credit karma. Credit cards and lines of credit with no balance owing and which don’t get used regularly don’t generate a statement – you need to actively take steps to check on these accounts every month, to avoid fraud and keep your accounts secure. You can also access your free credit report to make sure everything is reflected correctly.
• When it Comes to Credit, Go for Quality Over Quantity
  Having frequent applications for credit can temporarily lower your score, so to avoid bad karma, only apply for credit when it’s necessary and when you actually need it. Also, keep in mind that credit cards from banks or credit unions are viewed more positively than something like a payday loan or a ‘buy now, pay later’ credit account.

   

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Seeking Clearer Credit Karma For a Brighter Financial Future? We Can Help!

If your credit karma, credit score, or credit rating leaves you mystified, you’re not alone. Our friendly, accredited financial counsellors have helped thousands of people gain clarity around these topics and a variety of other personal finance issues. Reach out to us for a free, no obligation appointment. We’re happy to answer your questions and share our best insights!