How to Improve Your Credit Score in Canada

Your credit score is one of the most powerful numbers in your financial life. When you apply for a mortgage in Canada, this three-digit number is the first thing a lender looks at to decide whether to approve your loan and, just as importantly, what interest rate you'll receive.

A strong credit score can be the difference between getting a great rate that saves you tens of thousands of dollars, or a higher rate that adds significant cost to your homeownership journey. Many Canadians believe that their credit score is a fixed number that is difficult to change, but that’s not true. Your score is a dynamic snapshot of your financial habits, and with a clear strategy, you can significantly improve it.

This definitive guide will explain exactly what goes into your credit score, the five key pillars that determine your rating, and a step-by-step action plan you can use to improve your score and present the strongest possible application to mortgage lenders.

First: Understanding Your Credit Report

Before you can improve your score, you need to understand your credit report. In Canada, your credit history is tracked by two independent credit bureaus: Equifax and TransUnion. It's crucial to get a copy of your report from both bureaus, as lenders may not report all your information to both, and an error could exist on one but not the other.

Your credit report is your financial resume. It's a detailed history of how you've managed credit in the past. It includes:

Personal Information: Your name, address, date of birth, and employment history.

Credit Accounts: A list of all your credit products (credit cards, car loans, mortgages), including their balances, limits, and a month-by-month payment history.

Public Records: Information from public sources, like a bankruptcy or consumer proposal.

Inquiries: A list of "hard inquiries" made when you've applied for new credit.

Your credit score is the three-digit number calculated from all this information.

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The 5 Pillars of Your Credit Score

While the exact formulas are a closely guarded secret, both Equifax and TransUnion base your score on five key factors. To improve your score, you need to master these pillars.

Pillar 1: Payment History (35% of Score)

This is, without a doubt, the single most important factor. Your payment history is a simple record of whether you pay your bills on time. A consistent history of on-time payments is the bedrock of a great credit score. A single 30-day late payment can cause a significant drop and will remain on your report for six years.

Actionable Advice: The best strategy is to set up automatic minimum payments for every single bill you have. This creates a foolproof system to ensure a payment is never, ever missed.

Pillar 2: Credit Utilization (30% of Score)

This is the secret weapon for making the fastest improvements to your score. Your Credit Utilization Ratio is the percentage of your available credit that you are currently using.

The Golden Rule: You must keep the balance on every single one of your credit cards and lines of credit below 30% of its available limit.

Example: If you have a credit card with a $10,000 limit, a balance of $7,000 means you have a 70% utilization, which is actively hurting your score. A balance of under $3,000 is considered healthy.

The "Sweet Spot": For the absolute best scores, the target is 1-10% utilization. This shows you are actively using credit, but are in complete control.

Pillar 3: Length of Credit History (15% of Score)

A longer credit history is better. Lenders like to see a long, stable track record of responsible borrowing. The average age of all your credit accounts is a factor in your score.

Actionable Advice: Do not close your oldest credit card, even if you don't use it anymore. That old, inactive card is a valuable asset that is lengthening your credit history. Closing it can actually lower your score.

Pillar 4: New Credit Inquiries (10% of Score)

When you apply for new credit, the lender makes a "hard inquiry" on your report, which can cause a small, temporary dip in your score. Applying for a lot of new credit in a short period can be a red flag for lenders.

Actionable Advice: In the 6 to 12 months before you plan to apply for a mortgage, avoid applying for any other new credit, such as a new car loan, store credit card, or line of credit.

Pillar 5: Your Credit Mix (10% of Score)

This is the least important factor, but it still has an impact. Lenders like to see that you can responsibly manage different types of credit. A healthy mix might include both revolving credit (like credit cards, where the balance can go up and down) and installment loans (like a car loan, with a fixed payment).

Your 6-Month Action Plan to a Better Score

Improving your score is an active process. Here is a clear, step-by-step plan you can implement over the next six months to see a significant improvement.

Month 1: The Audit and Triage

Action: Get copies of your full credit reports from both Equifax and TransUnion. Go through them line by line and check for any errors.

Look for: Incorrect late payments, accounts that aren't yours (a sign of identity theft), or incorrect balances. If you find an error, file an official dispute with the credit bureau immediately. This is your legal right.

Months 1-3: The Credit Utilization Blitz

Action: This is where you will see the fastest results. List all your credit cards and their current utilization ratios.

The Strategy: Identify the card with the highest utilization percentage and focus every spare dollar you have on paying that single card down until it is below the 30% threshold. Then, move to the card with the next-highest utilization. This focused effort will have a dramatic and positive impact on your score in a very short amount of time.

Months 1-6: Perfect Your Payments

Action: As mentioned before, set up automatic payments for every bill. Even if it's just the minimum payment, this guarantees you will never have another late payment reported.

Months 3-6: The Power of Patience

Action: Once you've paid down your high-utilization cards and your payments are automated, the best strategy is often to let your score "age" and strengthen. Avoid opening new accounts or making major changes. Let your new, positive habits report to the bureaus for a few months to solidify your gains.

Improve Your Credit Score in Canada

Your credit score is not a permanent label; it's a reflection of your recent financial habits. By understanding the factors that build your score and by following a clear, deliberate action plan, you have the power to significantly improve it.

A higher credit score is the single most effective way to lower the cost of homeownership. It gives you access to the best lenders, the lowest interest rates, and the most favourable terms, which can save you tens of thousands of dollars over the life of your mortgage.

The first step to getting the best mortgage is understanding and optimizing your credit. Contact our brokerage today for a free credit report review and to build a personalized mortgage plan. We can show you exactly how your score is impacting your qualification and create a strategy to put you in the strongest possible position.

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