How to improve your credit score

To many people, their credit score is a bit of a mystery. It’s a number that follows you around, but that you probably don’t see every day – in fact, you might not have any idea what your credit score is at the moment. But it’s an important number, particularly if you’re applying for a credit card, loan or mortgage. So it makes sense that if you want to improve your chances of getting approved, you’ll also want to improve your credit score.

What is a credit score?

First things first. A credit score, or credit rating, is a number that represents how creditworthy you are. When you apply for a loan, for example, the bank can look up your credit score and get a pretty good idea of how well you’ve managed your financial obligations in the past – like paying bills on time, and paying back loans on schedule. It’s usually included in a credit report that has more details about your credit history.

Credit scores in Canada range from 300 to 900 points, with higher scores being better. Scores above 725 are very good. Scores above 760 are considered excellent. If you have a low score, it may be harder for you to get approved for a loan, mortgage, or credit card.

Keep in mind that potential landlords, employers and insurance companies can also request a copy of your credit report. So even if you aren’t planning on applying for a loan right now, there are plenty of reasons to work on getting your credit score into one of those higher ranges. And the sooner you start, the happier you’ll be in the end.

How is your credit score calculated?

Here are the main things that credit bureaus look at to determine your credit score:

• Your payment history – This includes whether you generally pay your bills on time, if you’ve had to deal with a collection agency, or if you’ve ever declared bankruptcy.

• Your credit use – The Financial Consumer Agency of Canada suggests you avoid using more than 35% of your available credit in order to keep your profile in good shape.

• The length of your credit history – The longer you’ve had accounts in good standing, the better you’ll look.

• How many requests have been made – The number of times your credit report has been requested translates into the number of credit products you’ve applied for. Too many in a short time can be a red flag. Don’t worry, requesting your own report doesn’t affect your score.

• How many different types of credit you have – having a number of different types of credit, like a credit card, a loan, a mortgage, or a line of credit, can help improve your score.

5 tips for improving your credit score

Because we don’t see it that often, and it’s been created by someone else, it’s easy to pretend we don’t have any control over our credit score. But it’s based on our behaviour, and that means it’s absolutely possible to improve it. You can’t change it instantly, but you can influence it over time. So if you’ve had trouble getting approved for credit products in the past, don’t worry – all is not lost!

Here are some steps you can take to help improve your credit score:

1. Request a free copy of your credit report. It’s important to check your credit report occasionally to make sure all the information is correct, and to identify any issues that could have a negative effect on your credit rating. You can request a free credit report from Equifax^®* or TransUnion^®† in Canada.

2. Make your payments on time every month. Your payment history is an important part of your credit score. The longer you go without missing a payment, the better your score will look. Consider setting up automated payments for recurring bills to make it easier.

3. Keep your credit card balances as low as you can. Ideally, you should pay your credit cards off in full each month. If that’s not possible, do the best you can. Keeping your balance low, in relation to your available credit limit, will be seen as responsible credit behaviour by the credit bureaus.

4. Don’t cancel all your cards at once. Once you get your balances back down to zero, it’s tempting to cancel your credit cards to avoid future problems. But your credit score is based on your credit history, and if you cancel all your credit products, there’ll be less evidence of your improved credit habits.

5. But don’t apply for too many loans or cards at one time either! Applying for lots of loan products over a short time can be flagged as risky behaviour.

Adopt good credit habits early for a healthier financial life

You can probably see by now that most of the tips for improving your credit score are really just common sense. And you don’t have to be in credit trouble to follow them. In fact, if you have a good credit score, you’ve almost certainly been doing some of them already. They’re not quick fixes, but they’re good habits to get into for a better credit history – and a better future.