How to Build Credit Score in Canada: Practical Steps for Financial Health
Your credit score has so much power over your finances — whether you can borrow money, rent an apartment, and more. So what do you do? Understanding how to build credit score in Canada is one of the best ways to start putting a solid financial foot forward and way ahead. Whether you’re starting from scratch or have just been hit a bit too hard — I mean we all have — there are ways to help you increase and build your credit score in Canada.
Steps to Build or Improve Your Credit Score
Alright, so let’s cut straight to the chase. How do you improve your credit score? Honestly, it is a slow and steady process. But, before you despair, these tips on how to build a credit score in Canada will most definitely help in building your foundation.
1. Pay Your Bills on Time
Payment history is that one thing that influences your credit score. Simple rule of thumb/ Always, and I repeat, always repay your credit cards, loans or other billings by the due date, or at the very least make the minimum repayment. How about setting up automatic payments, or reminders so you don’t miss a due date? Then you’ll have no excuse and always be on the safe side!
2. Maintain a Low Credit Utilization Ratio
Your credit utilization is the amount of your available credit that you use – or let’s just say how little credit you don’t use. The lower that number, the better. You will show lenders you’re more responsible with this type of credit. You’ll want to keep this below 30% if you can (10% is even better!), which means that on a credit card with a$10,000 limit, you ideally don’t want to carry over a $3,000 balance – yikes!
3. Avoid Frequent Credit Applications
Each and every time you apply for a new credit account, the lender will do a ‘hard inquiry’, which can knock a few points off your score for a few months. This will take you so many steps back! Pro tip: only apply when you absolutely need credit – and evaluate your options to find the best product for you.
4. Start with a Secured Credit Card
Secured credit cards are a great way to start using credit if you’re new to it, or even restarting. If you’ve never had a credit card before, you may not have much of a credit history. What this does is limit your options for cards down the road. So when you have a secured card, you put down a deposit as collateral. That deposit becomes your credit limit. Use the card for purchases and pay off the balance each month. With time, and before you know it, you’ll build up credit history.
5. Keep Older Credit Accounts Open
Guess what, the average age of your credit impacts your score as well! Lenders like to see a long record of credit use. The longer the better. If you have older accounts that you can keep open, do so. Try not to close your oldest account if you can help it.
6. Diversify Your Credit Types
Lenders like having insight into how people manage a mix of credit. And they should! Car loans, credit cards, a line of credit or a mortgage can all influence your score – and how well you manage those sums of money really matters.
Improve Your Financial Health
Improving your credit is a process in your financial journey. Consider this, an opportunity to bolster your habits. Pay your bills on time, understand the impact of your credit and keep a close eye on credit health. In due time, you will build a good credit score in Canada and your effort will translate into a financially stable future!
