Did you know that one of the most important aspects of your financial wellness is your credit score?
Your credit score is a representation of how responsible and reliable you are with money. It’s used by lenders to determine whether or not you’re a good candidate for a loan, and can even affect your insurance rates.
Few people in Canada can do without loans or credit cards these days. However, there is one thing that can stand in your way of getting faster approval for credit cards or excellent loan terms – your credit score.
It’s simple. A bad credit score means limited access to credit facilities. Fortunately, the score is not always static. If it’s terrible, you can improve it in different ways.
Let’s see how to improve your credit score in Canada.
- What Is Credit Score, and What Is an Excellent Credit Score?
- How To Improve Your Credit Score in Canada
- 1. Pay Your Credit Debts Promptly
- 2. Scrutinize Your Credit Report
- 3. Diversify Your Credit
- 4. Keep Your Credit Utilization as Low as Possible
- 5. Go Over the Minimum When Paying Credit Card Balances
- 6. Increase Your Credit Card Limit, But not The Spending
- 7. Don’t Throw Away Your Old Credit Card
- 8. Try Getting a Secured Credit Card
- 9. Don’t Apply for New Credit Frequently
- How Long Does It Take to Improve Credit Score Canada?
- How to Know Your Credit Score
- FAQs: How To Improve Credit Score in Canada
- Final Thoughts on How To Improve Credit Score Canada
What Is Credit Score, and What Is an Excellent Credit Score?
A credit score is a three-digit number between 300 and 900 that reflects your creditworthiness to lenders and other credit facilities providers. A credit score requires different things to calculate it; from the time it takes you to repay your debts to how faithful you are to your monthly repayments.
Credit Score Ranges:
- Excellent: 741-900
- Good: 713-740
- Fair: 660-712
- Below Average: 575-659
- Poor: 300-574
Everyone starts at the lowest possible score of 300 and works their way to 900, the highest. The higher the score, the better since lenders do not see you as too much risk. They can thus lend you money without fear. Therefore, the closer you are to 900, the better for you.
A score above 750 is excellent since it means you can access most standard loans and credit facilities at attractive interest rates.
The average credit score for Canada is 650, so you should not be too worried if your credit score is around this number. But if your score is significantly lower than 650, how do you get there? Here is how.
How To Improve Your Credit Score in Canada
If you’re looking to improve your credit score, follow these tips!
1. Pay Your Credit Debts Promptly
Your payment history plays a significant role in increasing your credit score. If you have a credit card, aim to pay the balances as promptly as possible without fail. Failure to do that will make your credit score receive a hit and thus remain low.
Therefore, if you want to increase your credit score, avoid late bill payments. Pay your bills on time!
To ensure prompt payment of your bills, we recommend that you automate your bill payments through your bank or credit card issuer. This will help alleviate a situation where you forget to manually make the payment. Alternatively, you can set up bill payment alerts on a personal finance app or digital calendar.
2. Scrutinize Your Credit Report
The Federal Trade Commission asserts that two in every ten consumers usually have errors in their credit reports, negatively affecting their credit score. That’s why it is always wise to start by scrutinizing your credit report and score first.
Credit bureaus have a legal obligation to provide you with your credit report annually if you request.
Request for your report and scrutinize it for any inconsistencies and errors. If you find any, raise the issue with the credit bureaus and wait for their response.
The errors to look out for include wrongful payment information, lack of information on debts you already repaid, wrong names, or damaging information that should no longer apply.
3. Diversify Your Credit
As the famous adage goes, “don’t put all your eggs in one basket”. Similarly, it pays to diversify your credit accounts. Starting with a credit card and then diversifying into installment loans, mortgages, or lines of credit will see your score improve.
Lenders think that if such a person has managed all these credit accounts well, they are good borrowers. That will then correspond to a higher score.
For example, your Equifax credit report will generally list four different kinds of credit accounts:
- Revolving Credit: Revolving loans have limits, which means you can access the credit at any time, but you must pay a minimum balance each month. Revolving credit is made up of things like credit cards and lines of credit.
- Installment Credit: is a loan paid back over a specified length of time. Late payments incur penalties, although monthly payments rarely change. Installment loans include car loans.
- Mortgage Loan: If you took out a mortgage to buy a home, the amount of your mortgage may appear on your credit report.
- Open Status Credit: On your credit report, open status accounts could be anything from a mobile phone account to utility bills.
Don’t worry if you don’t have many credit accounts. You shouldn’t open multiple additional accounts only to diversify your credit mix unless you intend to make use of them.
4. Keep Your Credit Utilization as Low as Possible
Credit utilization is the amount of credit you have used up relative to the amount available to you.
For instance, if your credit card has a credit limit of $10,000 and you have used up, say $8,000, that will be a very high utilization score. Lenders think that you are not financially sound if you accrue that much debt.
The higher the credit utilization score, the lower your credit score.
Keeping the utilization score at 30% of the total or less will help you increase your credit score.
5. Go Over the Minimum When Paying Credit Card Balances
Despite the amount of debt on your credit card, there is always a minimum amount of money you have to pay back. It is always a good idea to pay more than the required minimum amount as this will help keep your credit utilization low.
In the long-term, keeping your credit utilization low, will help increase your credit score.
6. Increase Your Credit Card Limit, But not The Spending
This would be the last thing on many people’s minds, but it can help you increase your credit score. How?
We have already seen that the credit utilization rate affects the credit score. But what if you agree to an offer to increase the limit on your credit card? That means if you maintain your spending, your credit utilization rate decreases, thereby resulting in an increase in your credit score.
7. Don’t Throw Away Your Old Credit Card
Older credit accounts with a good credit history usually help boost credit scores. That’s because lenders favour a long history of consistent payments.
Thus, you should not get rid of your old credit card even if you no longer have any use for it. To avoid the possibility of your credit card issuer deactivating it because of inactivity, you can automate small payments to be charged on the card.
8. Try Getting a Secured Credit Card
This is an ideal way for newcomers to Canada to start their journey towards a good credit score.
Unlike the usual (unsecured) credit cards, a secured credit card needs you to deposit a specific amount that will serve as the card’s spending limit. For example, if deposit $500 upfront, you are issued a credit card with a $500 credit limit.
Of course, you’re still expected to pay off the credit card balances on time as required. However, this method will help increase your credit score with each payment you make with a secured credit card.
9. Don’t Apply for New Credit Frequently
Applying for new credit frequently may be deemed irresponsible by lenders.
An inquiry is created when lenders or others request your credit report from a credit agency. Credit checks are another term for inquiries.
If your credit record contains too many credit checks, lenders may believe you’re:
- seeking credit urgently
- attempting to live above your means
Therefore, you should limit your number of credit applications and/or credit checks as it could reduce your credit score depending on whether it is a soft inquiry or hard inquiry. Hard inquiry/hits negatively affect your credit score, while soft inquiry does not affect your credit score.
|Type of Inquiry||Examples|
|Hard Hits||• a credit card application|
• some employment applications
• some rental applications
|Soft Hits||• requesting your own credit report (For example, through Borrowell)|
• businesses requesting for your credit report to update their records about an account you already have with them
How Long Does It Take to Improve Credit Score Canada?
It’s a common question: How long does it take to improve credit scores in Canada? The answer, unfortunately, is not simple. Credit scores are complex and ever-changing, so there is no one-size-fits-all answer. However, there are some general guidelines that can help you understand how long it might take to see an improvement in your score.
One of the most important factors in credit score is payment history. Late or missed payments can have a major impact on your score, and it can take months or even years to recover from those mistakes. If you have recent late payments, it will likely take some time to see an improvement in your score.
Another important factor in credit score is credit utilization. This refers to the amount of credit you’re using relative to your credit limit. It’s important to keep your utilization low because high utilization can hurt your score. If you’re currently using a high percentage of your available credit, it will likely take some time to see an improvement in your score.
Finally, keep in mind that credit scores are always changing. As new information is added to your credit report, your score may go up or down.
In general, it could take you 3 to 6 months to increase the score by 100 or 200 points if you actively take all measures possible.
Do not be fooled; there are no shortcuts, and you can’t cheat the system. Increasing your credit score will require you to spend wisely and commit to paying your debts on time. Consolidate your debts and start dealing with them one by one. Gradually you will see your credit score increase.
How to Know Your Credit Score
Canada’s two major credit rating agencies – Equifax and Transunion – will give you your credit score for $20. However, you don’t have to pay if you don’t want to, since you can get your credit report for free in Canada through third-party companies (such as Borrowell) or select banks (such as Royal Bank of Canada – RBC).
- Borrowell will give you your free Equifax credit score.
- Credit Karma will provide your credit score and report for free via Transunion.
FAQs: How To Improve Credit Score in Canada
How Fast Does Your Credit Score Go up Canada?
Although it takes time to establish a high credit score in Canada, it only takes three to six months of regular payments to develop enough credit history to receive a basic credit score. Your credit score is derived from the number of loans you have taken out, as well as how successfully you have been able to repay them.
Is 700 a Good Credit Score in Canada?
It is best to aim for a credit score of 700 or higher in Canada to have a good credit score. Although “good” technically begins at 660, obtaining a credit score of 700 or higher will provide you with many choices.
What Is a Good Credit Score in Canada for a Mortgage?
In 2022, a credit score of 680 or higher is needed to get the best mortgage rates in Canada. You may qualify with credit scores between 600 and 680, but these lenders may charge higher interest rates.
What is a Good Credit Score in Canada?
A good credit score in Canada is typically a score above 713
How to Improve Credit Scores Canada Newcomer
As a newcomer to Canada, here are five tips to help boost your credit score in Canada:
1. Start off with one credit card (avoid applying for several credit cards).
2. Pay bills on time – Ideally, you should pay your bill/balance in full each month.
3. Use different types of credit: loan, credit card, and line of credit.
4. Make sure you are not using more than 35% of your available credit
5. Look for inaccuracies in your credit report and dispute them, if applicable.
How is Credit Score Calculated in Canada?
In Canada, your credit score is calculated using information from your credit report. This includes information such as your payment history, outstanding debt, and credit utilization.
The exact formula used to calculate your credit score is a closely guarded secret, but we do know that payment history is the most important factor. So, if you want to maintain a good credit score, it’s important to make all of your payments on time.
Other factors that can impact your credit score include having a mix of different types of debt (e.g. revolving debt and installment debt), using a small percentage of your available credit, and having a long history of borrowing.
By following these tips, you can help ensure that you have a strong credit score.
Final Thoughts on How To Improve Credit Score Canada
It might seem like a tall order to increase your credit score to the appropriate level. However, it isn’t impossible, especially if you follow all the outlined tips. You need to be at your best financial behaviour to boost your credit score.
That means paying off your debts, making credit card payments on time all the time, diversifying your credit accounts, or efficient utilization of your credit card. If you do that, it won’t take long before your credit score has risen to the level you want. It will take time, though.