How to improve credit score in Canada

Having a good credit score is important for a whole host of reasons and therefore knowing how to improve your credit score in Canada is crucial.

Whether you want to improve your credit score because you’re new to Canada and starting from no credit history at all, or you’re starting from a bad credit rating, the steps you need to follow are similar.

We’ll cover the steps you can take to improve your credit score in detail. We’ll also cover the context you need so you can feel confident proactively managing your credit score and report in Canada.

Credit score Canada

To be able to improve your credit score, it’s important to understand what your credit score is, what influences it and how it fits into your broader credit history and report.

What is your credit score Canada?

Your credit score is a three-digit number that essentially signifies how well you have managed credit in the past.

Your credit score is set by credit bureaus in Canada. The credit bureaus in Canada are:

• Equifax
• TransUnion

These credit bureaus collect data shared to them by financial institutions, like banks, on what credit you have with each institution and how you manage it. So the financial intuitions share how much credit you have, how much you’re using, when you make payments, if you miss payments, etc.

The credit bureaus then apply a formula to all this information to produce your credit score.

Financial institutions check potential new credit customers with credit bureaus (along with other checks) to determine whether to lend to the customer, how much to lend and on what terms.

What is a good credit score in Canada?

Credit scores are generally something between 300 and 900.

The higher your score the better credit rating you have.

The following credit score ranges from Equifax show what credit score ranges are considered good:

• 760 and above is excellent
• 725 to 759 is very good
• 660 to 724 is considered good
• 560 to 659 is below average
• Less than 560 is poor

If your credit score is in the very good or excellent range you’ll get approved for almost all credit products at the best interest rates.

With a good credit score you’ll be able to get approved for most credit products at standard rates. But there might be some premium credit cards which you won’t as yet qualify for.

With a credit score below average you can still get credit but it might not be as easy and you might not get the best deals.

If you have a poor credit ratings you’ll struggle to get any sort of credit unless it’s secured (like a secured credit card which doesn’t require any credit checks on you).

We’ve got recommendations of the best credit cards that span all these ranges, so regardless of which range you fall into there are ways to get a credit card.

What is your credit report in Canada?

Your credit report is the term for the record held by the credit bureaus of all your credit accounts.

Your credit report will show the following as examples: all the credit accounts you have (and have had), their credit limit, their outstanding balances, your past payment history, your personal details. That kind of thing.

Your credit report in Canada is created the first time you apply for any credit in Canada.

Your credit score is one aspect of your credit report in Canada.

Any credit report that you may have in another country is different to your Canadian credit report. Neither one will affect the other.

You can, and should, check your credit report for free using a service like ClearScore. We’ll cover this in more detail later in the article.

What is your credit history in Canada?

Credit history is just a generic term for your credit report.

How is your credit score calculated?

The credit bureaus don’t publish their exact formula for how they calculate credit scores. But we do know that the following factors have an impact in raising or lowering your credit score.

We’ve listed them in order of the importance they have on your credit score (so you’re payment history has a much bigger impact on your credit score than your credit mix, for example).

The factors that affect your credit score are:

• Payment history. This is your history of making credit payments on time.
• Credit utilization. How much of your available credit are you using?
• Length of credit history. What is the average age of all your credit accounts?
• Credit mix. Do you have different types of credit? Like loan and credit card.
• New credit. What new credit have you applied for recently?

We’ll go into more detail about each of these factors as part of our ‘how to improve your credit score’ section below.

How to improve credit score Canada

We’ve outlined the simple steps you can take to increase your credit score in Canada below.

These steps are most applicable if your starting from little or no credit history in Canada.

If you are starting from negative items on your credit report in Canada then these steps will still be helpful but it will just take longer to have an impact. There’s more details on this further in the article.

Here are our 10 steps to improve your credit score in Canada:

1. Get some credit

This may seem somewhat obvious but you’re not going to be able to improve your credit score in Canada if you don’t apply for and get some credit, particularly a credit card.

Your credit score won’t improve by prudently managing your non-credit finances like your bank account, debit card and utility bills.

You need to have and use credit to build your credit score in Canada.

So whether you particularly like to spend on credit or not, it’s sensible to have a credit card and use it. That way, when you come to applying for a loan for that car you want, you already have a decent credit score and can get a good loan deal.

Luckily there’s a whole host of credit cards that cater towards people with little or no credit history in Canada. You can read our overview here.

Almost all Canada newcomer bank account packages come with a credit card. You can read our pick of the best newcomer bank accounts here.

2. Pay your bills on time

Once you have credit, the single biggest thing you can do to improve your credit score in Canada is the most obvious and straightforward one: pay your bills on time.

Payment history has the biggest impact on your credit rating. So if you keep paying your credit card bills on time, your credit score will increase.

This high weighting towards payment history is particularly good news if you’re starting from no credit history at all in Canada. Just getting a newcomer credit card and paying the bills on time will have a pretty quick impact on your credit score.

More on how long it takes to improve your credit score in Canada later in the article.

If you’re not the best with admin and are prone to forgetting to pay your credit card bill, make sure to take advantage of the auto pay features that most credit cards have. You can set this up through the credit card website.

It’s handy to have it set to pay the minimum amount even if you don’t want to set it to automatically pay the full statement balance. Doing the minimum amount means there won’t be any missed payments on your credit report even if you forget to make the full payment on time.

This brings us nicely on to the next tip…

3. Pay even the minimum bill amount

You should always pay at least the minimum statement amount, even if you can’t afford to pay the full statement balance right away.

Doing this will stop missed payments being on your credit report which would negatively affect your credit score.

If you think you’re going to have difficulty paying your bills, you should contact the lender. Don’t wait until you’ve missed a payment, contact them as soon as you know you’re going to struggle with paying. Often the lender can help.

4. Manage your credit utilization

The second most influential factor to your credit score is credit utilization. To ensure this has a positive impact on your credit rating, try to use only about a third of your available credit (or around 30-33%).

Here we are talking about your total available credit; so all your credit cards and any line of credit you have.

Having balances consistently above 35-50% could see your credit score start to drop.

5. Take the maximum credit limit

To help keep your credit utilization as low as possible, it’s a sensible to always take the maximum credit limit offered by the card issuer.

Even if you know you don’t intend to use the maximum it will give you a nice buffer to keep your credit utilization low.

6. Pay your bill more than once a month

If you’re a newcomer to Canada with limited credit history, often the credit limit offered on credit cards is quite low. So if you’re struggling to keep your spending around the 30% range, you should pay off the balance on the credit card more than once a month.

If you do that you can manage your balances to keep it around the 30% range.

7. Longtime credit accounts are good

The third biggest influence on your credit score is length of credit history. This is basically the average age of your credit accounts.

In terms of how to improve your credit score in Canada, this one is obviously somewhat out of your control if you’re a newcomer to Canada. You basically just have to keep your credit accounts open and in good standing to help increase your credit score.

However, there is one thing you can definitely do, or not do, to help here: do not close old credit card accounts if you don’t have to.

Have at least one credit card that you keep active and don’t close. Even if you get new credit cards with better rewards, keep your oldest credit card open (if it’s no-fee).

How much impact closing a credit card will have on your credit score is hard to say. If closing the credit card won’t take your credit utilization too high then it probably won’t have too much of an impact on your score. But, if your card is no-fee and you’re using your credit cards responsibly, then there really is no benefit to your credit score in closing it.

8. Have multiple types of credit

Having a range of different credit types will help to increase your credit score in Canada. We’ve referred to this as credit mix in the ranking factors above.

It’s beneficial to have not only credit cards, but also other types of credit like a car loan, line of credit, and even some types of pay monthly cell phone contracts (depending on the financing agreement).

9. Be sensible with new credit applications

While it’s good to have a mix of credit accounts, you should be mindful about opening new credit accounts.

Hard credit checks have an impact on your credit score, so limit the number of credit checks done on you in quick succession. Don’t just open new credit cards for the sake of it.

If you’re shopping around for a loan or other credit, try and do it all within a couple of weeks. If you do this then each credit check should be combined as one inquiry on your Canadian credit report which will limit the impact on your score.

Keep in mind that only hard credit checks, like applications for credit, have an impact on your credit score.

Soft credit checks, like viewing your own credit report through a free service like ClearScore, don’t affect your credit score at all.

10. Monitor your credit report

Errors on your credit report are not as uncommon as you’d like to think they are. Depending on which stat you look it can be as high as a third of people having mistakes on their credit report.

Whatever the number, the message is to check your credit report for errors. Errors could be things like missed payments and credit inquiries that weren’t authorised by you. Any errors could be having a tangible impact on your credit score.

You can dispute anything that isn’t correct with the credit bureaus.

You can find your credit score and check your credit report for free using a service like ClearScore.

There’s a good overview here from the Financial Consumer Agency of Canada on checking your credit report and what to do if you find any errors.

How long does it take to improve credit score in Canada?

Your credit score can change really frequently, I’ve seen my credit score change in less than 30 days.

According to the Financial Consumer Agency of Canada:

• In general it takes 30 to 90 days for information to be updated in your credit report.
• Negative information stays on your credit report in Canada for roughly six years.
• Positive information stays indefinitely.

But if we’re asking how long does it take to tangibly increase your credit score in Canada, this depends on your starting position: either you have little or no credit history because you’re new to credit, or you’re trying to recover from bad credit history.   

If you’re new to credit you can improve your credit score tangibly within months.

Recovery from bad credit history can take years given that negative information stays on your credit report for around six years.

The greatest influence on your credit score is your history of consistent payments. So if you get your first credit card and pay your bills on time then you can materially improve your score quite easily and quickly.

Exactly how quickly it will grow depends on a number of factors, but, using myself as an example should give you an indication of how quickly you can grow your credit rating from scratch.

Read on for our experience.

Our experience of improving our credit score in Canada

When my partner and I moved to Canada from the UK, we were starting from a position of no credit history at all in Canada. We applied for a credit card through one of the Canadian bank’s newcomer programs as soon as we arrived and started using that card as soon as we got it.

We used a free service, ClearScore, to monitor our credit report and score. Incidentally, ClearScore is also who we used and still use to monitor our credit score in the UK.

We did all our spending – including recurring bill payments – on credit card and paid the credit card more than once a month to keep our credit utilization down.  

Within two months of opening the credit card, our credit rating was good enough that we were able to get a car loan at a decent rate through a mainstream lender.

The initial limit on the credit card was low, but within a few months the bank offered to increase our limit.

And within the first year of being in Canada we had multiple sources of credit (credit cards, line of credit, car loan) and our credit score was in the good range.

Obviously this is just our experience; how quickly you can build your credit score depends on a number of factors, including finding employment.

But hopefully the outline of our path demonstrates that you can build a decent credit score in a short enough time to use credit for the things you need to. It isn’t something that needs to take years

Things that don’t affect your credit score in Canada

Although it obviously sensible to prudently manage all your financial affairs, only those transactions which use credit in some way will affect your credit score.

So the following will not affect your credit score in Canada:

• Using your debit card or other non-credit card to pay for things.
• Soft credit checks like checking your own credit score through a service like ClearScore.
• Paying your utility bills. Generally speaking utility companies don’t report your payments to the Canadian credit bureaus. But if you get into arrears and it’s passed to a debt collection agency, that can damage your credit score, for example.

What is a line of credit

I’ve mentioned line of credit a few times in this article. But for many newcomers to Canada this won’t be a familiar term – at least it wasn’t to me when I first moved to Canada.

So what is a line of credit? A line of credit is a flexible loan, usually from your bank, up to a defined maximum amount that you can access whenever you want.

So if you have a line of credit of $5000 approved, you can transfer any value up to $5000 into your chequing account whenever you want. Or any other form of drawing from that source – writing a cheque that pulls from the line of credit for example.

You can use as little or as much of the available funds whenever you want for whatever you want.

You can pay back the money whenever you want and you only get charged interest on the money that you borrow from the time you access it.

So in many ways it’s similar to an overdraft (as I was used to in the UK).

A line of credit can be particularly helpful in improving you credit rating in Canada: if you apply for a line of credit and rarely use it, it will help to keep your credit utilization low. And the different type of credit will help with the credit mix factor.

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So that’s our guide on how to improve credit score in Canada. I hope you’ve found it useful.

If you have any questions or comments please do drop us a comment below.