How to Increase Your Credit Score in Canada

Your credit score is one of the most important factors when applying for a mortgage, credit card, or any other type of loan. In Canada, credit scores range from 300 to 900, with higher scores indicating a stronger credit profile. A higher credit score not only improves your chances of getting approved for loans but also helps you secure better interest rates. Whether you’re building credit from scratch or looking to improve an existing score, here are practical tips for increasing your credit score in Canada.

1. Pay Your Bills on Time

Payment history is the most significant factor in your credit score, accounting for about 35% of your overall score. Late or missed payments can have a serious negative impact. To avoid missing payments, consider setting up automatic payments for your bills, such as credit cards, utilities, and loans. Consistently paying bills on time is one of the best ways to improve your credit score.

2. Keep Your Credit Utilization Low

Credit utilization refers to the percentage of your available credit that you’re using. Ideally, you should aim to use no more than 30% of your total credit limit. For example, if you have a credit card with a $10,000 limit, try to keep your balance under $3,000. High credit utilization signals to lenders that you may be over-reliant on credit, which can negatively affect your score.

3. Don’t Apply for Too Much Credit at Once

Every time you apply for a new credit product, a hard inquiry is recorded on your credit report, which can temporarily lower your score. Avoid applying for multiple credit cards or loans in a short period of time, as this can make you appear financially unstable to lenders. Be selective about the credit products you apply for to protect your score.

4. Pay Off Your Debts

Carrying large amounts of debt can hurt your credit score. Focus on paying down high-interest debts, such as credit card balances, as quickly as possible. Not only will this improve your credit utilization ratio, but it will also reduce the overall amount of interest you pay. Paying off debt helps to free up more credit and shows lenders that you can manage your financial responsibilities effectively.

5. Keep Old Credit Accounts Open

The length of your credit history also impacts your credit score. Even if you no longer use an older credit card, keeping it open can benefit your score by contributing to a longer credit history. Closing old accounts can lower your available credit, potentially increasing your credit utilization rate, so it’s better to keep them open as long as they’re not costing you unnecessary fees.

6. Diversify Your Credit Mix

Having a mix of credit types, such as credit cards, personal loans, and a car loan, can improve your score. Lenders like to see that you can manage different types of credit responsibly. However, only take on new types of credit if you can manage them well. The key is to demonstrate that you can handle both revolving credit (like credit cards) and installment credit (like loans).

7. Check Your Credit Report Regularly

Errors on your credit report can drag down your credit score without you even knowing it. In Canada, you can request a free copy of your credit report from Equifax or TransUnion. Review your report regularly for any errors, such as incorrect personal information or unauthorized credit inquiries. If you find any inaccuracies, dispute them right away to ensure your credit score is accurate.

8. Don’t Max Out Your Credit Cards

Maxing out your credit cards, even if you plan to pay them off, can negatively impact your credit score. High balances can lead to a higher credit utilization rate, which signals to lenders that you may be overextending yourself. Always aim to keep your balances low, ideally under 30% of your credit limit, as this will help improve your credit score.

9. Limit Your Credit Inquiries

Too many credit inquiries in a short time frame can signal that you’re seeking credit aggressively, which can lower your score. Hard inquiries from credit card or loan applications remain on your credit report for about two years and may affect your score for up to one year. To protect your score, try to limit your credit applications and only apply for credit when necessary.

10. Be Patient and Consistent

Improving your credit score takes time, so it’s important to be patient and consistent with your efforts. Paying bills on time, reducing debt, and being mindful of your credit utilization will all help your score improve steadily. Over time, your credit habits will show lenders that you’re a reliable borrower, which will naturally boost your score.

Conclusion

Boosting your credit score in Canada requires smart financial habits and consistency. By focusing on paying your bills on time, keeping your credit utilization low, and managing your credit responsibly, you’ll be well on your way to achieving a strong credit profile. Whether you’re planning to apply for a mortgage or simply want to improve your financial health, these steps will help you build and maintain a good credit score. For more personalized advice on how your credit score affects your mortgage eligibility, feel free to contact us at Mortgages for Less!