Your credit score affects many aspects of your life. If you want to borrow money, take out a mortgage, rent a home or pursue your dream job, then your score matters. It even affects the interest you pay on a loan or credit card.

Whether you have poor credit or no credit, we will show you the steps to increase your credit score and unlock better credit.

We’ll examine how a credit score is calculated and show you how to improve your credit score in Canada by breaking down the process step-by-step.

What is a good credit score?

A good credit score in Canada is 660 or higher. Using Equifax’s score range, a credit score in the 660 to 724 range is considered good.

You can access better credit products with a credit score of 660 or above.

How is a credit score calculated in Canada?

Credit scores are never an exact science. Credit bureaus use different algorithms to grade your credit score, and some lenders even use their own.

The credit score secret sauce isn’t important; we are rewarded for maintaining good credit and punished if we don’t.

There are five main factors that affect your credit score calculation:

  • Your payment history: 35%
  • Credit utilization (used credit vs. available credit): 30%
  • Credit history: 15%
  • Public records: 10%
  • Inquiries: 10%
How a credit score is calculated in Canada

Other factors, such as your income and employment status, also affect your creditworthiness.

Let’s dive deeper and fine-tune these factors to improve your credit score.

How to improve your credit score in Canada

We’ve identified some of the best ways to build your credit. Regardless if you have a good credit score, poor credit or no credit at all, these strategies can help you increase your credit score.

Here are 10 steps to improve your credit score in Canada:

1. Check your credit report

The first step in your credit-building journey is checking your credit report.

A credit report summarizes how you manage credit and your financial obligations.

Even if you’ve been paying your bills as they become due, credit bureaus make mistakes, and fraudulent activity can occur. Fortunately, it’s easy to make sure this doesn’t happen.

Request your credit report from Equifax and TransUnion, Canada’s two major credit bureaus. You should request a report from both, as each bureau can hold different information about you.

While you should check your report at least once a year, some people do it monthly to avoid unexpected changes, identity theft and unauthorized credit inquiries.

Common credit report errors

Pay particular attention to things like:

  • Incorrect personal information.
  • Misspellings of your name or address.
  • Accounts that don’t belong to you.
  • Unfamiliar accounts or credit inquiries.
  • Payments made on time but recorded as late.
  • Inaccurate credit limits.
  • Accounts attached to debt collection agencies.
  • Closed accounts reported as open.

Ensure there are no open credit cards or other accounts in your name that you don’t recognize, as this could be a sign of identity theft.

If you spot an error, file a dispute with the credit bureaus, and contact the creditor who made the mistake.

Fixing these errors can result in a significant improvement to your credit score, and it could be the difference between passing or failing a credit check.

2. Make payments on time

If you want to improve your credit score in Canada, making payments on time is the best thing you can do. Payment history is the single most important factor affecting your credit score.

Simply pay your bills on time every month, and your credit score will increase. It shows lenders that you’re capable of managing credit.

If you pay a bill within 30 days, it’s on time, and an R1 credit rating is recorded on your credit report. The rating is more severe the longer you do not pay.

Payment history on credit reports - credit ratings

If you’re forgetful, a good way to ensure you don’t miss a payment is to set up automatic bill payments from your chequing account.

Consider paying twice a month

Many of us are accustomed to paying bills at the end of the month, but why not try to make a payment every two weeks instead?

Pay a bill twice a month at a slightly higher rate than usual to boost your credit score, pay off debt faster, and save money on interest.

For example, you can pay off your credit card faster and pay less total interest if you make bi-weekly payments.

3. Improve credit utilization ratio

Many Canadians might not realize that using too much available credit has an enormous impact on your credit score. If you reduce your balances, your credit score will go up.

Keeping a low credit utilization ratio improves your credit score.

Your credit utilization ratio (or debt-to-credit ratio) is the percentage of your used credit from the total credit limit across all your accounts. It has the second-highest effect on your credit score.

It’s easy to calculate your credit utilization. Just add the credit limits for all your credit products, such as credit cards, loans and other lines of credit.

You must use less than 30% of your available credit. If you have a $1000 credit card, you should keep your credit utilization ratio below $300.

There are a few things you can do to improve your credit utilization ratio:

  • Make more than the minimum monthly payment.
  • Take any credit limit increase offered by the credit card issuer.
  • Spread your balance over other lines of credit.
  • Add more credit to increase your total available credit.

Just as debt can be too high, it can also be too low. If you have low credit limits, it may suggest to lenders that you are not comfortable with higher limits and may not be able to make larger repayments on time.

Find out when a late payment is reported to the credit bureaus

When you know when your credit accounts are updated, you can boost your credit utilization ratio.

Contact your lender and find out when the balance is reported to the credit bureaus. Then pay your balance before this date, so your reported balance is lower.

4. Build a long credit history

Credit history is a historical record of your credit accounts. Lenders want to see multiple credit accounts used responsibly for years. Your credit history makes up 15% of your credit score.

A record of responsible borrowing will positively impact your credit score. Building a credit history takes time, and there’s no quick fix. If you don’t use credit or use it recklessly, it’s impossible to achieve your larger financial goals, like buying a home.

The average age of credit accounts affects your credit score

The average account age on your credit report is a positive factor in determining your credit score.

The older a credit account, the better. Keep accounts in good standing; use them regularly and pay them on time. If you have an older credit card that you haven’t used for a while, use it again to boost your credit score.

Lenders want to see you manage credit accounts successfully for at least two years.

The fastest way to build credit is to apply for a credit card and use it. But, if you are younger, have poor credit, or have recently moved to Canada, you may not qualify. A secured credit card can help, which we will cover in the next section.

Not all lenders are equal. Major banks are considered “A lenders” and are given more weight by credit bureaus.

5. Use a secured credit card

One way to improve your credit score is by establishing a consistent payment history with a credit card. If you can’t get approved for a regular credit card, use a secured credit card.

A secured credit card is guaranteed to be accepted with all the benefits of a regular credit card, but you must make a security deposit. Your deposit usually determines your credit limit. If you deposit $400, you’ll typically be given a limit of $400.

Purchases are not deducted from your deposit, and you make repayments like a regular credit card.

A secured credit card can help you establish or rebuild your credit because it reports payment activity to credit bureaus. As long as you make payments on time, you can improve your credit score.

6. Use a mix of credit

Did you know that if you only use a credit card, you’re missing an opportunity to strengthen your credit score?

When you have a mix of different types of credit, it can improve your credit score. There’s no perfect mix, but it helps to use a combination of installment credit and revolving credit.

Having a healthy mix of credit can positively impact your credit.

Four different types of credit may appear on your credit report:

  • Installment credit: making fixed payments over a set term, typically with interest. When you’ve repaid in full, you cannot reuse it. Examples include mortgages, vehicle loans, student loans and personal loans.
  • Revolving credit: can be reused up to the agreed limit as long as the account is open and payments are made on time. Examples include credit cards and home equity lines of credit (HELOC).
  • Open credit: you can borrow up to a specific limit, but you must pay monthly. Typically, it’s a type of credit that facilitates the use of a service and allows you to pay at the end of the month. Examples include a mobile phone account or a utility bill.
  • Mortgage loans: Mortgages are recorded separately on your credit report because they are different from regular installment loans. Interest rates can be fixed (never changes) or variable (can change).

For example, having a credit card (revolving credit) and a loan (installment credit) is more advantageous than just having a credit card.

Lenders like to see that you’ve successfully managed different types of credit accounts over time.

Not having a mix can hurt your credit score but don’t open an account you don’t need or can’t afford.

As long as you’re using various credit products responsibly, you can establish a positive credit history, boost your credit score and demonstrate to lenders that you are a versatile low-risk borrower.

There are different types of credit accounts: revolving, installment, open and mortgage.

7. Don’t make too many credit applications

Inquiries are worth 10% of your total credit score calculation and are useful to lenders because they record the frequency of credit applications.

Credit inquiries are worth 10% of your total credit score calculation.

Avoid applying for too much credit too quickly, and always check whether a company will perform a hard or soft inquiry before proceeding.

Hard inquiries

When you apply for credit, rent a property, or apply for a job, a lender may carry out a credit check called a hard inquiry.

A hard inquiry lowers your credit score and remains on your credit report for three years. Anyone who looks at your credit report can see these inquiries.

Multiple hard inquiries in a short time can indicate to lenders that you are in financial distress. Try to space out credit applications, especially if you have been rejected recently.

Fortunately, credit bureaus combine inquiries for applications like mortgages and car loans if they’ve occurred in a short period of time.

So, if you are making multiple applications to determine the best car loan deal, do it within two weeks. All these inquiries appear on your credit report, but only one affects your credit score.

Multiple hard inquiries within a certain time period for a home or auto loan are generally counted as one inquiry.

Beware that some credit applications, such as credit cards, are treated as individual hard inquiries, regardless of the timeframe.

However, some credit card companies allow you to determine which credit cards you’ll be approved for before applying without affecting your credit score.

Soft inquiries

Soft inquiries are non-credit-related inquiries that don’t affect your credit score. They are not visible to anyone but you.

Existing lenders and insurance companies carry out soft inquiries. They’re also used for credit preapprovals and when you check your credit.

Checking your credit score will not lower it.

8. Understand public records

Public records are pieces of financial information that appear on your credit report which are also on file with the government.

Examples include court proceedings, liens, foreclosures, bankruptcies and consumer proposals.

This information is reported to the credit bureaus and appears in the public records section of your credit report.

myEquifax Canada: Public Records

Public records can negatively affect your credit score for many years. If you think it’s a mistake, you can raise a dispute with the credit bureau to have it removed.

9. Resolve accounts in collections

When an account is left unpaid, it’s passed to a debt collection agency. When this happens, you must liaise with the collection agency to resolve the debt.

Accounts in collections stay on your credit report for six years. The credit account receives a 9 credit rating (the worst possible). As a result, your credit score will drop.

Debts in collections damage your credit score and can result in legal action.

How to increase your credit score when you have collections

If you have collections on your credit report, contact the collection agency to get proof that you owe the debt and find out the outstanding balance.

If you owe the debt, make arrangements to pay it. Not only does this stop further action, it means that you can request the information to be updated on your credit report.

Sometimes, the collection agency won’t report to the credit bureaus if you pay it off within a specific timeframe, so when you pay, ask them if this is the case.

Once the debt has been settled, ensure you obtain a receipt from the collection agency and send a copy to both credit bureaus so they can update your credit report. Keep this receipt or proof the debt was paid.

Paying the debt will slightly improve your credit score. More importantly, you’re demonstrating to future lenders that you were responsible enough to contact the collection agency and pay off the debt.

10. Budget and reduce your debt

While it doesn’t directly affect your credit score, budgeting can help you pay off debt and manage your money better.

If you have mounting debts and find it challenging to keep up with your monthly payments, do something about it before it damages your credit.

Need debt relief? For ways to reduce your debt, learn how to get out of debt in Canada and check out our debt relief guide.

How long does it take to improve your credit score in Canada?

You cannot improve your credit score overnight. It can take months or years, depending on whether or not you have a history of handling credit poorly.

According to the Financial Consumer Agency of Canada, it takes 30-90 days for information to be updated in your credit report, so it is possible to improve your score in a few months.

Negative credit information on your credit report can appear for six years. However, old debts have less influence on your credit score over time.

If you had missed payments or collections but are now paying your bills on time, your credit score will improve. Focus on maintaining your recent good credit history.

If you have no credit at all, you can build a history quickly. Newcomers to Canada can use a secured credit card to build a fair to good range credit score in as little as two months.

65% of your credit score is based on paying your bills on time and keeping credit balances lower than 30% of your available credit.

The five pillars to improve your credit score in Canada:

  • Make payments on time.
  • Keep credit balances low.
  • Build your credit history using a mix of credit.
  • Don’t apply for too much credit at once.
  • Avoid getting into debt.

Wrapping up

Use this guide to improve your credit score, borrow money at the best interest rates and achieve your financial goals like getting approved for a mortgage or car finance.

While your credit score is vital, companies consider other factors, such as your income and employment.

Despite its hype, your credit is not the most important factor when improving your financial health. First and foremost, ensure that you have enough money to live on by budgeting your money and saving for the future.

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