How to build credit and improve your credit score

You probably left school knowing more about dinosaurs than how to build credit. Time to get your credit score turned around — the stegosaurus won't mind.

Considering that your credit score is one of the key financial factors used when you're taking out a loan – whether that's a credit card, line of credit, or a mortgage – it's a little odd that you don't learn how to build credit in high school or even university.

Fortunately, building a stellar credit score that will help you qualify for low rates on that dream car or home is a goal within your reach. To make that happen, understanding how credit scores are calculated and using that information to your advantage will have a huge impact.

What is a credit score?

Falling on a scale between 300 and 900, your credit score is a measure of your financial health. Your score represents how well you manage your credit and tells lenders how risky it is to lend you money. The higher your credit score, the better.

Why does your credit score matter?

Having a higher credit score helps you qualify for better mortgage and loan rates. Even if homeownership is a decade away for you, it's essential to build up your credit score now. Shaving just a few tenths of a percentage point off your mortgage interest rate could save you thousands of dollars in interest later.

What determines your credit score?

Equifax and TransUnion are the two credit reporting agencies in Canada, and they each track your score separately. Your score might not be exactly the same between the two, but it should be close. Both organizations use various factors to determine your creditworthiness, including:

  • The length of your credit history
  • Whether you carry a balance on your line of credit or credit card
  • How often you miss payments
  • If your credit tools are close to their limits
  • How frequently you apply for more credit
  • The types of credit you have
  • If you have debts that have been sent to collections
  • Whether you have declared bankruptcy

How do you check your credit score?

Both Equifax and Transunion have the option to print out an annual paper request for your credit. Alternatively, you can pay to see your credit report online. You can also check your credit score for free through websites like Borrowell and Credit Karma.

How to build your credit score

If you're young and haven't been using credit very long, it can be easy to make a few mistakes that will have a significant impact on your credit score. But don't worry. It's easy to improve your credit score with some know-how and planning. Try these five tips:

1. Never miss a payment

Whether it's your credit card, car payment, or cell phone bill, make sure you never miss a payment — ever. If you can't afford to make the full payment, call your provider and arrange a partial payment to preserve your credit score and your relationship with your provider.

2. Don't overuse credit

Your credit utilization rate is the ratio of your credit tool's balance to its limit, and it has a significant impact on your credit score. Try not to carry a balance any higher than 35 percent of your available limit. For example, if you have a credit card with a $5,000 limit and need to charge that spur-of-the-moment dream vacation, keep your balance lower than $1,750.

3. Keep your oldest credit card active

The length of your credit history matters, so keep your oldest credit tool active, even if you don't use it. That might be a student credit card with a $500 limit or an old department store card. Whatever it is, keep it open and in good standing.

4. Use different types of credit

Using different kinds of credit shows lenders that you can handle multiple payments at once, which is good for your credit. Managing a credit card, a car loan, and student loans all at the same time will help boost your score.

5. Limit your new credit applications

Multiple applications for credit cards can be a red flag to lenders. To avoid taking a hit to your credit score, limit the number of times you apply for credit.

If you're shopping around, gather your quotes from different lenders within a short period. This will combine the credit score inquiries you trigger into a single request and limit the damage.

Your credit score is a powerful financial tool, but unfortunately, most Canadians aren't using it to their advantage. By following these steps, you can find out your credit score for free, apply easy strategies to help improve it and use it to move you toward your financial dreams.

Multiple applications for credit cards can be a red flag to lenders and temporarily lowers your credit score. To avoid this, limit the number of times you apply for credit (and skip signing up for credit cards to get free swag). If you are shopping around, get your quotes from different lenders within a short period, which will combine your credit score requests into a single request and limit the damage.


Now that you've learned how to build credit, you're on the road to a stellar credit score. Just remember: never miss a payment, don't max out your credit cards, and avoid taking on new credit unless you need it.


This content is for information purposes only and is not intended to provide specific financial, tax or other advice and should not be relied upon in that regard. Individuals should seek the advice of qualified professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.