How to Increase Your Credit Score In Canada

What’s your credit score?

Ten simple tips on how to improve your credit score and work towards your financial goals! AKA, homeownership!

What is credit?

Credit is a financial payment arrangement between a borrower and a lender that allows access to funds for repayment at a later date. Common types of credit include installment loans for large purchases such as a home or a car, as well revolving credit arrangements including credit cards and lines of credit. The first time you apply for credit or borrow money from a lender, your credit file is created. From that moment forward, any company that lends you money, issues you a credit card or provides a service (like Telus for example) will send information regarding the financial transactions you make to Canada’s two credit reporting agencies, Equifax and TransUnion.¹

The two Canadian credit agencies:

Equifax is a Western Canadian based agency, and TransUnion is Eastern Canada based–however both work to access Canadian credit reports. It’s essential to maintain good credit to earn trust with lenders, so you have access to credit when you need it, especially when you’re shopping for new homes and need a mortgage!

10 simple tips to improve your credit rating!

1. Keep balances low

Keep rotating credit like credit cards under your credit limit by at least 80%. For example, if you have a $5,000 credit card, pretend the limit is actually $4,000! This looks good on your credit report!

2. Avoid NSFs like the plague

NSF (Non-Sufficient Funds) payments are not cool! If you ever miss a payment, make sure you catch it up quickly. Any payment that is missed and not caught up by 30 days could be reported to the credit bureau. If you know you won’t have funds to cover a payment, you have the option to ‘stop a payment’ to avoid NFS fees. Stop payments are better than NSFs, because they cost less money. However, neither look good to lenders.

3. Overdraft protection

This is a good service to have in your financial toolbox if your balance goes below $0. This allows your payment to go through, so you avoid NSFs and stop payment history. However, overdraft is very expensive and should only be used if you absolutely need the extra cushion!

4. Do not neglect your phone bills!

Cell phone companies are notorious for reporting late phone bills, even if they still provide services. More often than you’d expect, people forget to make cell phone payments on time & it negatively affects your credit.

5. Set up auto payments wherever possible

Talk to your service providers and financial institution to set up autopayments where possible. Autopayments ensure you pay bills on time, and never fall behind. Even when you have available funds, it’s easy to forget about making that minimum payment on your credit cards.

6. Check your credit for collections

It’s recommended that you check your credit at least once a year! Sometimes you have small unattended accounts that you weren’t aware of. A good example is parking tickets, sometimes these are missed when the tickets aren’t city tickets that must be paid when you renew your licence at registries. Even if you owe $150, if the sit on your credit report, it negatively affects your credit.

7. Keep revolving credit open

Consider keeping an older account open even if you don't need it. Use it from time to time to 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. 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 accounts that are relatively new. If you transfer an older account to a new account, the new account is considered new credit.²

8. 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 car or a mortgage. Your inquiries will be combined and treated as a single inquiry for your credit score. Apply for credit only when you really need it.²

9. Mix your credit up

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 cards, car loans and a lines of credit. A mix of credit products may improve your credit score. Make sure you can pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.²

10. Up your payments

^{1.https://www.cibc.com/en/personal-banking/loans-and-lines-of-credit/articles-resources/what-is-credit.html}

^{2.https://www.ratehub.ca/credit-cards/how-to-read-a-credit-report}