How to Improve Your Credit Score

A good credit score is crucial in Canada for anyone who wants to make big financial moves in life, such as buying a home, starting a business, or even getting a new credit card. It's not just about being able to access credit - a high credit score can also mean lower interest rates, better terms, and even the ability to negotiate better deals. 

But what exactly is a credit score, and how can you make sure yours is as good as it can be? In this article, we'll explore the ins and outs of credit scores in Canada, and give you some tips on how to build and maintain a solid credit history.

 

Factors that affect the calculation of your credit score

Your credit score is based on information from your credit reports, and it can vary depending on the scoring model used and the agency providing the data.

Now, let's talk about what actually affects your credit score.

• Payment history: The biggest factor is your payment history. Basically, if you consistently pay your bills on time, you're in good shape. On the other hand, if you're regularly late or miss payments altogether, that's going to hurt your score.
• Credit age: Lenders want to see that you have a history of using credit wisely, so it's a good idea to keep those old credit accounts open, even if you're not using them.
• Credit utilization rate: This is just a fancy way of saying how much of your available credit you're actually using. Lenders like to see this rate at or below 30 percent, which means you're using credit responsibly.
• Credit mix: Having a mix of credit types can also help your score. This means having a variety of accounts, like credit cards, student loans, and mortgages.
• Hard inquiries: These occur when a lender or creditor checks your credit after you apply for a new line of credit. Too many hard inquiries can hurt your score, so try to avoid them if you can.

In summary, paying your bills on time, keeping your credit utilization rate low, maintaining old credit accounts, having a mix of credit types, and avoiding too many hard inquiries are all things that can help improve your credit score.

 

What is the average Canadian credit score?

To begin the conversation on enhancing one's credit score, it's crucial to establish a benchmark of what qualifies as a desirable rating. This is where the average Canadian credit score comes into play. 

While the average credit score can fluctuate from one province to another, the Canadian nationwide average hovers around 650. 

In Canada, credit scores can range from 300 to 900. You don't need an "excellent" score to get a loan or credit in Canada, but having a good score can help you get better loan terms. Scores below 560 are poor, 560 to 660 are acceptable, 660 to 724 are good, 725 to 759 are very good, and 760 and above are excellent. Higher scores mean you're less risky and can get better loan terms like higher credit limits or lower monthly payments.

 

How to improve your credit score? 

If you're worried that your past credit problems are impacting your current score, don't stress! You have the power to change your credit habits and improve your score. Here are some good credit practices that can help:

• Firstly, ensure you pay your bills on time, even if you can't pay in full. Making at least the minimum payment is better than missing a payment altogether.

• It's also important to watch your credit card balances. Don't use too much of your available credit, as this can make you look like you're overextending yourself.

• Be careful when opening new credit card accounts. Applying for new cards too frequently can make you look irresponsible to creditors.

• If you move, be sure to let your banks and credit card companies know your new address. You don't want to miss any bills and have them go unpaid because they were sent to the wrong address.

• Checking your accounts online can also be helpful. You can make sure payments are clearing and that your cards are up to date.

• Check your credit reports from all major credit bureaus to make sure everything is accurate. If you see any unpaid balances or accounts that have gone to collections, try to pay them off first. Paying off delinquent bills won't remove missed payments from your credit report, but it can make you look better to creditors.

• Look out for inaccuracies on your credit report because sometimes information reported to the credit reporting agencies isn't quite right or is incomplete. You can dispute these inaccuracies with the credit bureaus, and remember that it's up to you to let them know if one of your creditors reported inaccurate information.

By following these tips, you can improve your credit habits and potentially raise your credit score.

 

How to check your credit scores in Canada?

To check your credit score in Canada, you can request a free credit report from two credit reporting agencies: Equifax Canada and TransUnion Canada. You are entitled to one free credit report per year from each agency.

To request your credit report, you can visit the Equifax or TransUnion website and follow their instructions to verify your identity and request the report online. You can also request a credit report by mail or phone.

Use our quick and easy credit tool to check your credit score for FREE with what's known as a "soft check", that won't impact your credit:

In addition to the free credit report, both Equifax and TransUnion offer paid credit monitoring services that can provide more frequent updates to your credit score and alerts for any suspicious activity.

What's the waiting time to notice changes in your credit score?

Improving your credit score is like growing a plant; it takes time and effort to see results. The amount of time it takes to see changes in your credit score depends on your situation, but don't worry, you can still make progress!

Some things that hurt your credit score, like one late payment or a few hard inquiries, are easier to fix than others, like a foreclosure or an account going into collections.

Negative information, like late payments, usually stays on your credit report for up to seven years, while a Chapter 7 bankruptcy can stick around for up to 10 years.

The good news is that you can improve your credit score with patience and hard work. There's no magic solution that will change your score overnight, but with consistent effort, you can see your score grow over time. 

 

How to build a credit history?

If you're new to credit or have a short credit history, you may not have enough information to calculate a credit score. But don't worry! There are ways to establish credit and improve your score. Here are some options:

• Secured credit cards: These cards require a deposit upfront, but they're designed to help you build a credit history.

• Student credit cards: These cards are aimed at helping students build credit and establish credit scores. You'll need to prove that you're enrolled in school.

• Authorized user: You can become an authorized user on a family member's credit card account. This way, you can start building credit without applying for a card yourself.

• Co-signer: If someone is willing to co-sign a loan for you, you can build credit while they take on some responsibility for the debt.

• Utility and rent payments: Even though these payments don't usually show up on credit reports, you can ask your landlord or utility company to report your on-time payments to credit bureaus. This could help boost your credit score if you have a good payment history.

Having a good credit score is essential for everyone. Therefore, it's important to understand what affects your credit score and how to improve it. Remember, improving your credit score takes time and effort, but with good credit practices, you can make progress.