Healthy credit is one of the many factors major banks and other traditional lenders require for approval for certain products, like mortgages, car loans, and credit cards, among others. While your credit score is not the only factor that lenders look at for approval, it can affect their decision-making process and even the interest rate they charge you. If your credit health needs a boost, read on to find out how to improve your credit score in Canada.
Key Points
- Some of the best ways to improve your credit score include paying your bills on time, refraining from maxing out your credit cards, and removing inaccurate information from your credit report.
- It can take a few months of positive financial habits to see significant improvements to your credit score.
- You should check your credit every few months to see where you’re at, which you can do for free online using various website resources.
Can You Improve Your Credit Scores?
With certain actions, patience, and time, you can improve your credit score. Keep in mind, however, that no single action can guarantee improvement to your credit scores. Instead, it typically takes different steps to give your credit score a boost.
| Note: You may notice that your credit score increased on one credit report, but not another. That’s because not all creditors report to both credit bureaus, Equifax and TransUnion. Some creditors may report to only one, which would explain the potential discrepancies between reports. |
How To Improve Your Credit Score In Canada
It’s important to take several actions to improve your credit score, such as the following:
1. Make On-Time Bill Payments
Perhaps the most important factor that is taken into consideration when a credit score is calculated is how responsible you are with your debt payments. Paying on time and in full can help you build a positive payment history, which may affect your credit scores, so be diligent with your payments.
If your credit scores have fallen due to financial mistakes like missed payments, it’s imperative that you make sure these habits change.
Ways To Avoid Missing Payments
To make sure your bills are always paid on time, consider the following steps:
- Automatic Payments – Set up automatic payments for loans and credit cards if you have trouble remembering to pay them.
- Change Billing Due Dates – Call your credit card provider and ask if you can change your due date to match up with your paycheques or to a time that works better for you.
- Consolidate Debt – If you have too many payments to keep track of or your debts have high interest rates, consider consolidating your debt. You can do this either with a debt consolidation loan or debt consolidation program.
- Set Up Notifications – An easy way to be reminded of upcoming bill payments is to set up notifications on your phone.
2. Lower Your Debt-To-Credit Ratio
Also referred to as your credit utilization ratio, your debt-to-credit ratio is a common factor used to calculate your credit score. This ratio represents the percentage of your available credit that you’re using. It’s calculated by dividing the total credit you’ve used by the total available credit, and then multiplying by 100 to get a percentage. A good rule of thumb is to spend less than 30% of your credit limit.
How To Lower Your Debt-To-Credit Ratio
You can lower your ratio in the following ways:
- Ask For A Credit Limit Increase – Increasing your limit but keeping your spending the same can help lower your utilization ratio.
- Pay Off Your Card(s) Twice A Month – By paying off your credit card balance twice a month, you’ll be better able to keep your balance low throughout the billing cycle.
- Don’t Spend Close To Your Credit Limit — Practice some discipline when using your credit card by ensuring you don’t spend any more than 30% of your credit limit. For instance, if your credit limit is $10,000, make sure not to exceed $3,000 in credit card expenditures.
3. Don’t Close Old Accounts
Some people may want to cancel their credit cards when trying to manage their finances better and improve their credit scores. However, it can be beneficial to keep your credit cards open and active, especially if there’s no annual fee attached to them and your account is in good standing.
Keeping an old credit card account open and active will increase the average age of your credit accounts, which is a common factor used when calculating your credit scores. Cancelling a credit card, especially one that you’ve had open for a long time, could have a negative effect on your scores as it can reduce your credit age.
4. Review Your Credit Report For Errors
It’s recommended that you check your credit report at least once every six months to a year. However, more frequent monitoring can help you better track your credit and ensure all the information on the report is up-to-date and accurate, especially if your credit score is low and you’re making efforts to improve it.
Mistakes on your credit report can negatively affect your credit scores. If you notice any errors, report them to the respective credit bureau to have them investigated and rectified. Fixing even the smallest error could have a positive impact on your credit scores.
Types Of Errors To Look For
When checking your credit report, be sure to look for errors in these areas:
- Personal Information – You may find errors in regard to your basic personal information, such as your name, birthday, address, and SIN.
- Credit Information – When verifying your credit account information, look for inaccurate payment information, duplicate accounts, and incorrect account statuses.
- Identity Theft – Be sure to verify that all accounts and credit inquiries are yours. Any accounts, debts, or credit inquiries you’re unfamiliar with may be a sign of identity theft.
How To Dispute An Error On Your Credit Report
Contact the appropriate credit bureau to dispute an inaccuracy on your credit report:
| How To Dispute An Error With TransUnion | Learn More |
| How To Dispute An Error With Equifax | Learn More |
Where Can You Check Your Credit Score?
In addition to checking your credit score with TransUnion and Equifax, you can also check your score online for free with the following sources:
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
Ways To Help You Increase Your Credit Score In Canada
There are many ways to help increase your credit scores. You can help build a positive payment history and credit history by using a mix of products and services.
Use A Credit Building Product
Some products are available that are specifically designed to helps consumers build good credit without having to take on more debt or qualify for a traditional credit card. Here are a coupe to check out:
- KOHO Credit Builder. This product is a line of credit. KOHO will set aside a certain amount every month from your credit line and report it to Equifax as an on-time payment. No deposits, credit checks, or applications are required.
- Nyble. The credit-building tool from Nyble is also a credit line. You can access up to $150, with no interest charged and no credit check required. Your monthly payments are automatically reported to the credit bureau to help you steadily build good credit.
Apply For A Secured Credit Card
If you have bad credit and can’t qualify for a regular unsecured credit card, you can apply for a secured card. These cards operate similarly to regular credit cards, except secured cards require an upfront security deposit that often also serves as the credit limit. Moreover, they usually don’t require a credit check which can help protect your credit.
Every payment you make will be reported to the credit bureau(s), which can help you build a positive payment history. That said, your credit score can also be negatively impacted if you miss any payments. If used responsibly, you may eventually be able to switch to a regular unsecured credit card once your credit improves.
Use Your Rent To Increase Your Credit Scores
Rent payments may be one of your biggest monthly payments, but they;re unfortunately not reported to the credit bureaus. That means a missed opportunity to build credit.
Luckily, there are rent reporting services that serve as middlemen between you and the credit bureaus.
- Landlord Credit Bureau (LCB) is a credit reporting agency that will report your rent payments to the credit bureaus every month, which helps you use your rent payments to build good credit.
- Chexy is a digital service that allows you to pay your rent via your credit card. When you pay your credit card bills on time every month, you can steadily build a good credit score.
Keep in mind that both platforms charge a small monthly fee for their services.
Use Your Cell Phone Bill To Increase Your Credit
With a post-paid cell phone plan, your bill payments will be reported to the credit bureaus. As long as you make your payments on time every month, you can build a healthy credit profile. Cell phone plan providers like Koodo, Rogers, Telus, and Fido report payments to the credit bureaus.
Like any other bill payments, a history of timely cell phone payments can have a positive effect on your credit score. Payment history plays a key role in your credit score calculation, so making meeting your payment due dates is essential.
Apply For A Guarantor Loan
Guarantor loans are a good option if you have credit scores so low that you’re having trouble getting approved.
When you apply for a guarantor loan, there is generally no credit check involved for the primary borrower (you) during the application process. Instead, it’s your guarantor’s credit and finances that will be checked.
Your guarantor will need to have good credit and finances in order to be approved. You can then use the guarantor loan to cover your expenses and build credit as you pay back the loan. Keep in mind that the guarantor will be on the hook for taking over your payments if you fall behind, so make sure they fully understand their role and the potential risks.
Benefits Of Improving Your Credit Scores
There are several reasons to improve your credit scores:
- Higher Chances Of Loan Approval – Credit scores are one of the few key factors that lenders use during their loan approval process. So, having good credit may help you get approved for loans and other credit products.
- Lower Interest Rates – A good credit score can help you qualify for lower interest rates, which can save you money over the loan term.
- Higher Credit Limits and Larger Loan Amounts – High credit scores indicate that you may be a less risky borrower than someone with poor credit. As such, you may be able to qualify for a higher loan amount or credit limit.
- Better Chances Of Getting Hired — Some employers may check your credit score before determining whether to choose you as a new hire over other prospective candidates.
- Lower Insurance Premiums — Insurance providers may check your credit score to determine how much to charge you for your policy premiums. A higher score could get you more affordable rates.
What Can Cause Your Credit Scores To Drop?
There are a number of factors that can affect your credit scores. While no one action will affect a consumer’s credit score the same way, these are some common factors that could negatively impact it:
- Late or missed bill payments
- Financial delinquencies (ie. bankruptcies, consumer proposals, accounts in collections, etc.)
- Recent “hard inquiries” performed by lenders and other organizations when considering you for new credit.
- Closing old credit accounts
- Errors in your credit report that go undisputed
- Maxing out your credit cards
What Qualifies As A Good Credit Score?
A credit score is a three-digit number, ranging from 300 to 900. A higher credit score is best, as it means you’re less of a risk to creditors and may be more likely to get approved for credit products at lower rates.
The following chart details how credit scores are rated based on various ranges:
| Credit Score Rating | Credit Score Range |
| Excellent | 760+ |
| Very Good | 725 – 759 |
| Good | 660 – 724 |
| Fair | 560 – 659 |
| Poor | 300 – 559 |
Based on this chart, a ‘good’ credit score is anything between 660 and 724. Anything above this range puts you in the ‘very good’ or ‘excellent’ credit rating category.
What Is A Credit Report?
A credit report contains information about your credit-related accounts that lenders and creditors have reported to the credit bureaus. It also includes your personal information, such as your name, address, and Social Insurance Number (SIN).
When you open a credit account or make a payment to an existing one, it typically gets recorded in your report. However, it’s important to note that not all credit accounts and transactions are recorded, as some lenders and creditors may not report the data to one or both Canadian credit bureaus.
How Long Does Information Stay On Your Credit Report?
The exact amount of time that information remains on your credit report depends on the type of information reported. Generally, more serious instances, such as delinquencies (bankruptcies, consumer proposals, accounts put in collections, etc.) may remain on your credit report for longer than minor infractions.
Here are a few examples of different remarks on credit reports and how long they may stay on your report:
- Late payments: Up to 6 years
- Closed accounts: Up to 6 years
- Hard inquiries: 3 to 6 years
- Debt management program: 2 years
- Bankruptcy: 6 to 10 years
- Consumer proposal: 3 to 6 years
Bottom Line
Given how important your credit score is to your financial life, you should keep tabs on it and make sure it’s in a healthy range. If not, you may want to take immediate steps to fix it, which starts with timely bill payments and avoiding overspending on your credit card.
