How To Improve Your Credit Score Quickly in Canada?

A credit score is a three-digit number ranging from 300 to 900 that indicates your creditworthiness. Credit bureaus like Equifax and TransUnion calculate credit scores based on the information in your credit report. This includes your payment history, amounts owed, length of credit history, new credit inquiries, and credit mix.

Your credit score impacts your ability to get approved for loans and credit cards. It also influences the interest rates you pay. Lenders view borrowers with higher scores as lower risk and offer them better rates. That’s why maintaining a good credit score should be a priority. The higher your score, the better your credit standing, the more likely you’ll be approved for mortgages, car loans, credit cards, and other financing at favourable interest rates. This article will show you the seven proven strategies to improve your credit score.

What Are the Main Factors Affecting Your Credit Score?

There are five primary factors that make up your credit score:

Payment History (35%)

Your history of on-time payments is the biggest factor in your score. Late payments can significantly lower your score, while consistent, timely payments help raise it. Even a single late payment can impact your score for years.

Credit Utilization (30)

This refers to how much of your available credit you currently have outstanding. Using more than 30% of your total available credit limits can negatively impact your score. Keeping this ratio low demonstrates responsible credit use.

Length of Credit History (15%)

The longer your credit accounts have been open and in good standing, the better your score. Having established accounts shows lenders you can use credit responsibly over time.

Credit Mix (10%)

Different types of credit – installment loans, mortgages, credit cards, etc. – can help your score rather than only having one type. However, you don’t need to take out loans you don’t need just to mix it up.

New Credit Inquiries (10%)

Too many new credit applications in a short period can lower your score temporarily. However, rate shopping for a mortgage or auto loan within a focused period is treated as a single inquiry.

7 Ways to Improve Your Credit Score in Canada

Improving your credit score takes time and discipline, but following sound financial habits is achievable. Here are 7 proven strategies:

1. Pay Your Bills On Time, Every Time

Payment history has the biggest impact on your credit score, so pay all your bills on time, every time. Even being just a few days late can result in penalties and fees in addition to score damage.

• Set up automatic payments or payment reminders to avoid late payments.
• If you cannot pay in full, make at least the minimum payment by the due date.
• Contact your creditors proactively if you foresee payment issues. Most are willing to work with you.
• If you miss a payment, get back on track and continue paying on time. Your score should recover over time.
• Keep records of payment verification in case of disputes.

2. Keep Credit Utilization Below 30%

Keep your credit utilization ratio – how much you currently owe compared to your total available credit – at 30% or less. This signals responsible credit management.

• Calculate your utilization rate monthly. Divide your total outstanding balances by your total credit limits.
• Request credit limit increases to lower utilization.
• Pay down balances aggressively before the statement closing date.
• Consider paying more frequently than monthly.
• Balance spending across multiple cards instead of maxing out one card.

3. Maintain Older Credit Accounts

Having established credit accounts helps your credit score, so avoid closing your older, paid-off accounts if possible.

• Keep your oldest accounts open and active if there are no annual fees. Use them periodically.
• Consider product changes to waive annual fees instead of closing old accounts.
• Be strategic when contemplating account closures. The length of credit history impact is significant.
• Pay off installment loans on schedule without early payoffs to maximize the credit-building benefit.

4. Diversify Your Credit Mix

Having different types of credit – revolving (credit cards) and installment (mortgage, auto, student loans) – can help your credit score mix.

• No need to take out loans you don’t otherwise need, but utilizing a diverse mix over time can benefit your profile.
• As your financial needs advance, consider graduating from secured cards to unsecured credit and adding installment loans.
• Managing different credit types demonstrates experience as a borrower.
• Maximize the number of active accounts as your creditworthiness improves.

5. Limit Hard Credit Inquiries

Each application for new credit results in a hard inquiry on your credit report, so limit credit checks by only applying for credit selectively.

• Comparison shop for mortgages and auto loans within a focused period. Credit bureaus count these as a single hard inquiry.
• Avoid applying for multiple credit cards in a short timeframe. Space out applications by 3-6 months.
• Set up credit monitoring alerts to help detect fraudulent inquiries.
• Each inquiry’s impact diminishes over time.

6. Monitor and Dispute Credit Report Errors

Checking your credit reports regularly can help you detect and correct inaccuracies before they cause lasting damage.

• Review reports from Equifax and TransUnion annually for errors. Accounts that aren’t yours, incorrect balances, duplicated accounts or wrong personal information can influence your score and suggest identity theft.
• If you find errors, file disputes with each credit bureau in writing. Provide documentation.
• Be persistent in having errors corrected by following up in writing if disputes are rejected.
• Once resolved, request updated credit reports to confirm.

7. Be Patient and Consistent

Improving your credit score takes diligence and perseverance. Focus on developing consistently positive habits over time.

• Don’t expect an overnight fix. Paying down debt takes time. The impact of negative items diminishes slowly, too.
• Consistently making on-time payments and keeping credit utilization low each month is key.
• Avoid new credit applications while rehabilitating your credit to minimize hard inquiries.
• Create a long-term plan and make steady progress through positive everyday credit practices and financial discipline.

How Can You Monitor the Progress of Improving Your Credit Score?

Monitoring your credit score regularly is the best way to track your progress. Take advantage of free options:

• Your bank and credit cards may offer free credit scores and reports through online accounts. Check each month.
• Order free annual credit reports directly from Equifax and TransUnion. Stagger orders every 4 months for ongoing monitoring.
• Sign up for a free service like Credit Karma to view regularly updated scores and reports.
• Reviewing your full credit reports allows you to check details in each credit score factor category to gauge your improvements.
• Compare your current scores to past scores. Make sure the direction and magnitude of changes align with your expectations based on your recent credit activity and timelines.

What Are Common Credit Score Myths You Should Ignore?

Some common misconceptions about credit scores could lead you astray:

• Checking your own credit or shopping for rates won’t hurt your score. Only applications for new credit count as hard inquiries. Soft inquiries from your own requests have no impact.
• Carrying a small balance doesn’t help build your score faster and costs more in interest. Pay off full balances each month.
• Closing old credit cards can hurt your score rather than help if it reduces your overall available credit or length of positive credit history.
• Co-signing doesn’t just affect the other person. If they miss payments, your credit will also be damaged.

What Should I Do if I Find Errors on My Credit Report?

If you find mistakes on your credit report:

• File disputes in writing with both Equifax and TransUnion. Clearly identify the inaccurate account information, and provide documentation like account statements as proof.
• Both credit bureaus must investigate within 30 days per federal law.
• If it is verified to be inaccurate, the bureaus must correct the information in your file.
• If your dispute is rejected, file a follow-up dispute and include additional account documentation.
• Contact the creditor reporting the error directly as well. They are required to correct inaccurate information with the bureaus.
• Monitor your credit reports and ensure errors are fully rectified by the bureaus as expected.

FAQs on Improving Credit Score

The Bottom Line

Maintaining a good credit score requires diligence and patience. Focus on making steady progress by paying your bills on time, reducing your debt utilization, and allowing your credit history to age. With consistent effort, you can overcome past mistakes and enjoy the advantages of a strong credit score.

Article Sources

1. Improving your credit score, Government of Canada