In today’s world, and in light of recent data theft scandals, more and more consumers are looking into their credit score. After all, this deceptively simple piece of information plays a key role when you are pursuing a major financial project, such as buying property. If your credit score is low, you may have more difficulty getting a mortgage for the home of your dreams. Fortunately, you can improve your score quite easily with a number of ways.

What is a credit score?

Canada’s two main credit bureaus, Equifax and TransUnion, generate your credit score, which is considered anytime you want to borrow money. Scores range from 300 to 900, providing an objective overview of your credit report to help potential lenders determine the risk involved in granting you a loan, how much to lend you, and what interest rate to propose. The higher your score, the better your chances of obtaining favourable mortgage terms.

In 2022, fintech company Borrowell surveyed two million of its members and found that the average credit score in Canada that year was 672. 

How do I obtain my credit report? Is it free?

Before you can think about improving your credit score, you need to look over your credit report. You can request a free copy from Equifax and TransUnion online. Be aware that the credit bureaus and other websites also offer paid versions.

You can also request your report over the phone, by mail, or in person. If you make a request over the phone, you will need to provide your social insurance number (SIN). To send a request by mail, you’ll need to download a form, fill it out, and provide supporting documents to validate your identity. You can also go to a credit bureau in person to make the request. Be sure to bring some valid ID. All the necessary information is available on the Equifax and TransUnion websites. 

Review your credit report

In addition to your personal information, your credit report contains information on your various loans and bank accounts. It may also contain information that adversely affects your score, such as bankruptcies, NSF cheques issued in your name, and outstanding debts.

Correcting errors in your credit report 

Mistakes happen, and one may have slipped into your credit report. If you find an error, have it corrected as soon as possible. It’s important to act quickly because an inaccurate credit report can prevent you from getting a loan.

To correct an error, contact the credit bureaus. You’ll need to back up your claim with supporting documents, such as your credit card statement. Often, notifying your creditor of the situation saves time, as they can quickly provide up-to-date information to the credit bureaus.

How to increase your credit score

Your credit score is influenced by many different factors, including your payment and credit history, the types of credit you have and how you use them, the amount of debt you owe, and how often you’ve applied for credit. Here are a few more simple tips to improve your score. 

Pay your bills on time

Paying your bills on time is one of the best ways to ensure a good credit score. Even a single late payment can have a negative impact. If you often forget to make payments, consider automating them, or pay your bills as soon as you receive them.

Pay your credit balance in full 

Pay at least the minimum amount on your credit card balance every month. If you can, pay the full monthly balance as soon as the statement is issued. This practice will quickly boost your score. Here’s a tip: only use your credit card to make purchases you can pay back in the short term.

Keep the number of credit cards in your name to a minimum

Do you have several credit cards? Try to keep just one or two from major creditors, opting for the cards you’ve held the longest (older cards have a positive impact on your credit score). Pay off any other credit cards, including store cards, starting with the ones that have the highest interest rates.

Minimize credit applications

Your credit file is consulted every time you apply for a loan, regardless of the type of loan and whether it’s granted. These credit checks leave a trace on your file. 

Don’t use all your available credit

Creditors have a negative view of consumers who overuse their credit. Whenever possible, you should aim to use no more than 35% of your available credit (e.g., lines of credit, credit cards, or loans). For example, if you have a $5,000 line of credit and a credit card with a $5,000 limit, try not to borrow more than $3,500. Monitoring your credit utilization is essential to maintain a good credit score. Don’t hesitate to ask for a credit limit increase.

Use a line of credit

This type of revolving credit is often more advantageous than other borrowing products, and can really boost your credit score. Not only is it easy to manage, but you only pay interest on the amounts you withdraw from your account, rather than on the total amount of the loan.

Diversify your credit accounts

Holding a variety of products as (insurance, credit cards, lines of credit, car loans or even mortgages shows that you can manage different types of credit.

Demonstrate your stability 

Your credit report contains a lot of personal information, such as your various addresses and a list of jobs you’ve held. Given that lenders consider stability an asset, whenever possible, try not to move or change jobs too often.

What is considered a good credit score?

Unfortunately, there’s no magic number here, because policies vary from lender to lender. Scores of 760 or higher are usually considered excellent, whereas scores between 300 and 559 are considered poor. As a general rule, lenders give better terms to applicants with scores above 660. 

How you manage credit is also evaluated using a code consisting of a letter, usually R, and a number ranging from 1 to 9. For example, R1 is the best credit rating and indicates that you pay your bills on time (within 30 days), whereas R9, the worst rating, indicates a bankruptcy or that your file has been sent to a collection agency. (Fun fact: there’s no such thing as an R6 rating.) Ideally, you want a rating of 1 for each of your loans. Of course, your credit score is not set in stone; it changes over time. Actions demonstrating responsible credit management will boost your score, while improper credit usage will have the opposite effect.

Consult your broker to improve your credit score

We now know that a high number of inquiries on your credit report could make creditors think you’re living beyond your means and that you urgently need money.

For example, if you spend weeks shopping around for a mortgage at various financial institutions, the number of credit inquiries associated with your file is likely to increase. Fortunately, you can avoid this kind of problem by working with a Multi-Prêts broker, since their dealings with financial institutions count as only one credit inquiry.

FAQ

The R7 rating is assigned when a settlement agreement has been honoured. This includes debt consolidation, consumer proposals, and commercial proposals. 
Debt consolidation allows you to combine your debts into a single monthly payment, usually at a lower rate than you are currently paying. This means you can pay off your debts more quickly and easily. Consolidating your debt will not affect your credit score, as long as you repay your debt on time. 
It’s unlikely that your credit score will increase by 100 points overnight. However, there are a few simple actions that will help get you there faster.

For example, consider setting up automatic payments so you never forget to pay your bills again—and always pay the full balance. If you have credit products that you no longer use, keep them open to maintain a record of your history.

You should also avoid using all your available credit; don’t hesitate to ask for a limit increase if necessary. Holding different credit products (e.g., insurance, credit cards, line of credit, car loan, mortgage) also demonstrates your ability to manage multiple types of credit, which in turn will strengthen your credit history.

Key takeaways

  • The higher your score, the better your chances of obtaining favourable mortgage terms.
  • You can request a free copy of your credit report from Canada’s two major credit bureaus.
  • It’s possible for your credit report to contain mistakes. If you find an error, have it corrected as soon as possible to avoid being refused a loan. 
  • Paying your bills on time and limiting credit usage will help increase your credit score.
  • Getting a mortgage pre-qualification from Multi-Prêts lets you view your credit score at no cost, without affecting your credit report.