Improving your credit score

From Financial Consumer Agency of Canada

Monitor your payment history

Your payment history is the most important factor for your credit score.

To improve your payment history:

  • always make your payments on time
  • make at least the minimum payment if you can’t pay the full amount that you owe
  • contact the lender right away if you think you'll have trouble paying a bill
  • don't skip a payment even if a bill is in dispute

Some payments, such as student loans, won't be counted for your credit score. However, if you miss payments and your loan is sent to a collection agency, this will be included in your credit report. It will damage your credit score.

Use credit wisely

Don't go over your credit limit. Use only a percentage of your available credit. Try to use less than 35% of your available credit.

If you use a lot of your available credit, lenders see you as a greater risk. This is the case even if you pay your balance in full by the due date.

To figure out how to best use your available credit, add up the credit limits for all your credit products.

This includes:

  • credit cards
  • lines of credit
  • loans

For example, if you have a credit card with a limit of $5,000 and a line of credit with a limit of $10,000, your available credit is $15,000. Try not to borrow more than $5,250 at any time. This is 35% of $15,000.

Increase length of 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 accounts that are relatively new.

If you transfer an older account to a new account, the new account will be considered new credit.

For example, some credit cards offer you a low introductory interest rate on your current balance if you transfer it to a new product. The new account you transfer the balance to would be considered new credit.

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.

Limit your number of credit applications or credit checks

It's normal and expected to seek credit every so often. When lenders and others ask a credit bureau for your credit report, it's recorded as an inquiry.

If there are too many credit checks on your report, lenders may think you're:

  • urgently trying to get credit
  • trying to live beyond your means

“Hard hits” versus “soft hits”

“Hard hits” are credit checks that appear on your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.

Examples of hard hits include:

  • an application for a credit card
  • some rental applications
  • some employment applications

“Soft hits” are credit checks that appear on your credit report but only you can see them. These credit checks don't affect your credit score in any way.

Examples of soft hits include:

  • requesting your own credit report
  • businesses asking for your credit report to update their records about an existing account you have with them

How to control the number of credit checks

To control the number of credit checks on 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 car or a mortgage so that they are 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:

  • a credit card
  • a car loan
  • a line of credit

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

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