Moving to Canada has been quite a journey for me and my family, and one of the things I had to quickly get up to speed with was the financial landscape. RRSPs, TFSAs and credit scores were all Chinese to me. Now, you can probably get by without knowing what an RRSP or TFSA is, but not knowing what a credit score is will harm you in more ways than one! Where I come from in Africa, credit scores weren’t really a thing, but here in Canada, they play a huge role in your life and whether or not financial institutions will lend you money.

After going through a rough financial patch when I got out of college, I learned the hard way how important credit scores were. Banks were offering me the worst rates for a mortgage, and my poor credit score was a big reason why.

Now, over the years I’ve picked up some tips that can help you improve your credit score. Let me share what I’ve learned in a way that’s easy to understand and actionable.

1. Understand What Your Credit Score Is

To sum it up, your credit score is a number between 300 and 900 that shows how trustworthy you are with credit. It determines whether banks or lenders will loan you money for an apartment, a business or anything else really.

The Canadian public education system didn’t really teach anything about personal finance back in the nineties when I went through high school in Montreal. I’m not sure if it’s still the case today, but it certainly was a flaw in the education system!

When it comes to the actual score itself, the higher the better! Generally, anything above 700 is considered good, and over 800 is excellent. The two main credit bureaus in Canada are Equifax and TransUnion.

2. Start Building Your Credit Score Early

If you’re young and have no credit history, or are a newcomer to this country, starting to build your credit score from scratch is paramount. It might seem daunting, but it doesn’t have to be. Here’s how you can begin building your credit history.

• Apply for a Starter Credit Card: Some banks offer credit cards specifically designed for newcomers or students. These cards might have lower limits but are easier to get approved for.
• Become an Authorized User: If you cannot get approved for a credit card, despite trying several applications for newcomer cards, you should know that a close family member or friend can add you as an authorized user on their credit card. This can help you build credit based on their good habits.
• Open a Bank Account: Having a chequing or savings account shows financial stability and can make it easier to get approved for credit cards. This should probably be the first thing you do when you come to this country.

3. Pay Your Bills on Time

Once you get your first credit card, you want to start paying monthly bills with it (e.g.: cell phone, internet, hydro, etc) to start showing good payment habits.

I personally learned the hard way that paying your bills on time is crucial! Late payments can stay on your credit report for years and drag down your score, especially credit card or mortgage payments.

Set up reminders or, even better, automate your payments so you never miss a due date.

Actionable Tips:

• Use your phone’s calendar app to set up bill payment reminders.
• Enroll in automatic bill payments through your bank’s website.

4. Check Your Credit Report Regularly

I didn’t realize you could get a free credit report every year until someone told me. Now, I make it a habit to check mine from Equifax and TransUnion. My bank (RBC) provides a free credit score checkup. I think most Canadian banks do. Make sure you check yours regularly.

I personally also signed up for a credit monitoring service, and it’s been very helpful. They alert me to any changes or suspicious activities on my report. Such services include Borrowell and Credit Karma.

When you look at your credit report, look for errors like incorrect personal information or accounts that aren’t yours. If you find mistakes, contact the credit bureau to correct them. It’s your right to have an accurate report, and it can make a big difference.

Actionable Tips:

• Set a calendar reminder to request your free credit reports annually.
• Keep a record of your disputes and follow up if necessary.

5. Reduce Outstanding Debt

Keeping your credit card balances low is important, ideally under 30% of its total limit. I used to think maxing out my cards was fine as long as I paid the minimum, but that’s not true. Try to use less than 30% of your available credit. If you have a lot of debt, focus on paying down the ones with the highest interest rates first.

Actionable Tips:

• Make a list of all your debts and their interest rates.
• Prioritize paying off high-interest debt using the avalanche method (tackle the highest interest rate debt first).

6. Avoid New Credit Applications

Every time you apply for new credit, it can temporarily lower your score. I made the mistake of applying for multiple credit cards at once. Only apply for new credit when you really need it and try to space out your applications.

Actionable Tips:

• Before applying for new credit, assess if it’s really necessary.
• Space out credit applications by at least six months.

7. Keep Old Accounts Open

I used to close old credit accounts thinking it was a good move. However, older accounts help your credit history. Even if you don’t use them often, keeping them open can benefit your score and show a good ratio of credit used vs credit available.

Actionable Tips:

• Keep old accounts open, especially if they don’t have an annual fee.
• Use old cards occasionally for small purchases and pay them off to keep them active.

8. Diversify Your Credit Mix

Having different types of credit can improve your score. I only had credit cards initially, but adding a car loan and a mortgage have helped. Showing you can handle various types of credit responsibly is a plus. It doesn’t mean you should just go ahead and buy a car and a house just to improve your credit score, though! You can certainly attain a very good credit score just by responsibly using your credit card.

Actionable Tips:

• If you only have credit cards, consider applyig for different types of credits such as line of credit on your bank account or a car loan.
• Ensure you can manage any new credit responsibly before taking it on.

9. Limit Credit Utilization

I used to put all my expenses on one card, which wasn’t great. Spread your expenses across multiple cards to keep your utilization low on each one. Also, consider asking for a credit limit increase, but be careful not to spend more because of it. Remember the 30% rule we spoke about earlier! 

Actionable Tips:

• Distribute your spending across different cards.
• Request credit limit increases periodically, but avoid using the extra credit.

10. Correct Negative Information

If you have late payments or other negative marks, try negotiating with your creditors. I wrote goodwill letters explaining my situation, and sometimes they removed negative marks. You can also give them a call and ask if they can lower your debt. It’s worth a try.

Actionable Tips:

• Call or write a goodwill letter to your creditor explaining why you were late and ask for forgiveness.
• Be persistent and follow up if you don’t get a response initially.

Additional Tips:

• Secured Credit Card: If your credit isn’t great, a secured or starter credit card can help you rebuild it. Just make sure to use it wisely.
• Credit Builder Loan: Some banks offer credit builder loans specifically to help improve your credit score.

Improving your credit score takes time and effort, but it’s definitely worth it. A good credit score can get you better loan rates, mortgages, credit card offers, and even rental agreements. With these tips and a bit of discipline, you’ll be on your way to a stronger financial future. Good luck!