A better score can mean lower interest rates when you borrow. Five habits from the Financial Consumer Agency of Canada (FCAC) help lift a score over time:
- Pay your bills on time, which FCAC calls the most important part of your score.
- Keep your card balances well below your limits; FCAC suggests using under 30% of your total limit.
- Keep older accounts open and in use.
- Apply for new credit only when you actually need it.
- Check your credit report and dispute anything that’s wrong.
Credit bureaus and lenders use different formulas and don’t share the exact details. What goes into a score is on how credit scores work, and what each band means is on credit score ranges. No Canadian credit history yet? Jump to building credit from nothing.
How fast can your score go up?
Gradually. The bureaus refresh your report at least once a month, and your score moves as lenders send in new information about your accounts. It rises with on-time payments and careful use, and falls with missed payments or heavy debt. Equifax Canada says building a history takes time and not to expect dramatic change overnight. Late or unpaid card and loan payments can stay on your report for up to 6 years, so one late payment can stay on your record for years.
Pay your bills on time
Your payment history records how often you pay on time, and FCAC ranks it as the most important part of your score. To protect it:
- If you can’t pay the full balance, pay at least the minimum. More on the minimum payment.
- Call the lender as soon as you expect trouble paying.
- Keep paying even while you dispute a charge.
Your bank or card issuer may offer alerts when a payment is coming due or your available credit drops below a set amount.
Keep your credit utilization low
Credit utilization (also called credit use) is how much of your credit you’re using compared with your limit. FCAC’s tip is to stay under 30% of your total limit. Equifax Canada’s own guide uses 35% as its rule of thumb.
FCAC’s example. Your card has a $5,000 limit and you usually use $1,000 of it.
- Your utilization is 20%.
- Staying under FCAC’s 30% on the same limit means owing less than $1,500.
Lenders may see you as riskier if you regularly use a lot of your available credit, even if you pay the balance in full every month. So FCAC suggests keeping your monthly utilization low even when you pay in full, staying within your limit, and having a higher limit that you use only a little. More on credit limits and asking for a higher limit.
Keep older accounts open
Lenders like a long, steady credit history, and keeping accounts open and active over time may help your score. Closing an older card means losing that history and reducing the credit you have available. FCAC suggests keeping a card open if it has no annual fee, is easy for you to manage, and you can use it now and then to keep it active.
Opening a new card also counts: FCAC’s example is a new card for a balance transfer, which may lower the average age of your accounts and your score, and closing the old card afterwards may hurt your score more.
Apply for credit only when you need it
Too many applications close together may make lenders think you urgently need credit or are spending beyond your means. Which checks count and for how long is on how hard inquiries affect your score. Having only one type of credit may also mean a lower score, but borrow only what you can pay back, since too much debt can hurt it too.
Check your credit report for errors
You have the right to dispute anything on your report you think is wrong, and the bureaus must fix errors for free. One example is a payment marked late even though you paid on time. An error may even be why you were turned down for a regular card. If the lender confirms the information is right, though, it stays on your report. How to get your reports from both bureaus at no cost is on checking your credit score for free.
How to build credit with no credit history
A credit report starts when you first borrow or apply for credit, and TransUnion says it usually needs about six months of activity before it can calculate a score. So the first step is credit that gets used and reported:
- Ask whether the lender reports. Companies don’t have to report your account to the bureaus, though TransUnion says most do. Equifax Canada says a card that isn’t reported to Equifax and TransUnion won’t help build your history.
- A secured card. FCAC names it as an option when you have no history or bad credit. You put down a security deposit, and the limit is normally at or above that deposit. You may have to pay a one-time application or set-up fee, and the card may carry an annual fee, and be especially careful with secured card offers from issuers outside Canada. Card options are in the secured card list and the bad credit list.
- A store card or secured loan. TransUnion suggests these once you have steady income and have kept the same mailing address for at least a year.
- A co-signer. Someone can co-sign for you, but they’re equally responsible for paying the debt.
- A cellphone account. Equifax Canada says some providers may report your payment history to the bureaus.
Being an authorized user on someone else’s card is not a reliable route. FCAC says your purchases on the card won’t build your credit history. Equifax Canada says how the main cardholder pays may show on your history if the issuer reports authorized users, so ask the issuer first.
Newcomers to Canada
Equifax and TransUnion collect only credit activity in Canada, so your history from another country doesn’t carry over. Some lenders may still look at your foreign history, and you may need to bring your credit report from that country and meet a bank officer. FCAC lists being a newcomer with no credit history as a reason to consider a secured card, and Equifax Canada notes that many banks have credit cards and other products made for newcomers. More on applying: credit card approval.
Students and young adults
You have to be of legal age in your province to apply for a card of your own. Some issuers let an authorized user be under the age of majority, with the limits on building credit noted above. Student cards are designed to help students build credit, and they often have lower limits than standard cards. Options are in the student card list.
More guides are on the credit card basics page.
More on annual fees and on disputing a charge.