How to Improve your Credit Score

Canada Credit Score Ranges

You may be asking yourself, What exactly is a Credit Score?

A Credit Score is a three-digit number that lenders use to help them decide how likely it is they'll be paid on time if they grant you a loan. The higher your score, the more likely you are to get approved for a loan.

Monitor your Payment History

Your payment history is the most important factor in your Credit Score.

Four things you can do to improve your payment history:

  1.  Always make your payments on time
  2.  Make at least the minimum payment if you can't pay the full amount that you owe
  3.  Contact the lender right away if you think you'll have trouble paying a bill
  4.  Don't skip a payment even if a bill is in dispute

Use Credit Wisely

Don't go over your credit limit. If you have a credit card with a $5,000 limit, try not to go over that limit. Borrowing more than the authorized limit on a credit card can lower your credit score. Try to use less than 35% of your available credit. It's better to have a higher credit limit and use less of it each month.

For example:

  • A credit card with a $ 5,000 limit and an average borrowing amount of $1000 equals a credit usage rate of 20%
  • A credit card with a $ 1,000 limit and an average borrowing amount of $500 equals a credit usage rate of 50%
  • If you use a lot of your available credit, lenders see you as a greater risk. This is true even if you pay your balance in full by the due date.
  • To figure out the best way to use your available credit, calculate your credit usage rate. You can do this by adding up your credit limits for all of your credit products. This includes credit cards, lines of credit and loans.

Increase the Length of your Credit History

The longer you have a credit account open and in use, the better it is for your score. Your credit score may be lower if you have credit cards that are relatively new. If you transfer an older account to a new account, the new account is considered new credit.

For example, some credit card offers come with a low introductory interest rate for balance transfers. This means you can transfer your current balance to this new product. The new product is considered new credit.

Consider keeping an older account open even if you don't need it. Use it from time to time and keep it active. Make sure there is no fee if the account is open but you don't use it. Check your Credit Agreement to find out if there is a fee.

Limit your number of Credit Applications or Credit Checks

It's normal and expected that you'll apply for credit from time to time. When lenders and others ask a credit bureau for your credit report, it's recorded as an inquiry. Inquiries are also known as Credit checks. If there are too many credit checks in your credit report, lenders may think that you're either urgently seeking credit or trying to live beyond your means.

How to Control the Number of Credit Checks

To control the number of credit checks in your report:

  • Limit the number of times you apply for credit
  • Get your quotes from different lenders within a two-week period when shopping around for a vehicle. Your inquiries will be combined and treated as a single inquiry for your credit score.
  • Apply for credit only when you really need it

Use Different Types of Credit

Your score may be lower if you only have one type of credit product, such as a credit card.

It's better to have a mix of different types of credit, such as:

  • Credit Card
  • A Car Loan
  • A Line of Credit

A mix of credit products may improve your credit score. Make sure to pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.