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Credit scores reflect the ability to manage credit effectively. Lenders use it to assess how risky it is to lend to you. If your score isn't where you'd like it, start with these six simple steps.

Whether you’ve always struggled to maintain a decent credit score or your score just recently slipped due to mounting bills and debt, knowing how to rebuild your credit score is an important step to regaining your financial confidence.

Like a grade on a school report card, credit scores don’t move based on a singular action. Credit scores are built over time based on the cumulative effect of repeated behaviours. Understanding the steps to follow can help guide you on a positive path toward rebuilding a solid credit score.

These six tips should help get you started:

1. Review your credit report: Your journey to rebuilding your credit score should begin with understanding where you are today. It’s possible your credit score is not as bad as you think. Request a copy of your credit report from Equifax or TransUnion online or by phone. It’s also a good idea to check with your bank, as they may offer a free credit report. Review your credit report thoroughly to understand why your score was being downgraded.

If you identify any errors or discrepancies on your credit report, be sure to report it immediately, as it may negatively impact your current score.

2. Pay bills on time: One of the most important things to do as you rebuild your credit score is to make payments on time. Late payments may hurt your credit score, and if payments fall significantly behind, they might be passed to a collection agency, which may negatively impact your score even more. One way to avoid missing payments is to set up automatic bill payments through online banking.

3. Reduce your balance-to-limit ratio: A significant factor driving your credit score is your “Credit utilization ratio,” which is the term for the percentage of available credit you have used. It’s important to note that the amount of available credit you use does have an impact on your credit score. Ideally, you want your ratio to be less than 30 per cent, meaning if you have a credit limit of $5,000, you should have a balance no higher than $1500.

4. Use credit, but use it wisely: When individuals are trying to rebuild or raise their credit score, they believe it’s best to use cash and keep credit card balances low. While keeping your balances low is an important factor driving your credit score, showing lenders that you use your credit responsibly is equally important. Being able to spend on credit and make regular required payments helps demonstrate creditworthiness.

5. Add rent payments: If you are currently renting and live outside of Quebec, you can apply to have your rent payments added to your Equifax credit report. Showing responsible rent payments can help rebuild your credit rating faster.

6. Check-in regularly: Equifax and TransUnion update credit reports monthly, making it easier to stay on top of your score and its progress. It’s a good practice to set aside time to review your credit report at least once a year.

A solid credit score is an important part of your overall financial well-being, as it’s one way lenders determine your creditworthiness. Whether you are thinking about buying a home or a new car down the road, having a good credit score can help you secure more favourable terms on a loan or mortgage. If your score is not where you’d like it, start with these six simple steps.

Interested in seeing what your current credit score is? RBC Online Banking customers can access a free credit report.