5 Pro Tips to Improve Your Credit Score

Improving your credit score is essential in Canada as it determines your eligibility for loans, mortgages, credit cards, and even rental applications. A good credit score can help you secure better interest rates and loan terms, while a bad score can make it difficult to get credit and lead to higher interest rates.

In this blog, we'll explore the five ways to improve your credit score in Canada and give you an overview of the two major credit reporting agencies, Equifax and TransUnion, and their key differences.

1. Pay your bills on time

Payment history is the most important factor in determining your credit score, accounting for 35% of your score. Late payments, collections, and bankruptcies can have a negative impact on your credit score and remain on your credit report for up to seven years. To avoid this, make sure to pay your bills.

Pro tip: Set up automatic payments by calling your credit card and utility companies to pay your required minimum payment.  That way, you never run the risk of a late or missed payment.

2. Keep your credit utilization low

Credit utilization refers to the amount of credit you're using compared to the amount of credit available to you. It makes up 30% of your credit score. The lower your credit utilization, the better your credit score. It's best to keep your credit utilization below 30% of your available credit limit.

For example, if you have $10,000 in available credit – $5,000 limits on 2 different credit cards, let's say one Visa and one MasterCard – you want to try to maintain balances of the following:

• Mastercard: A balance of $1,500 or less
• Visa: A balance of $1,500 or less

In this scenario your overall utilization rate is 30% ($3,000 balance of $10,000 credit limit) and each of your individual card balances is at 30%.  There is a bit of debate about whether credit bureaus will determine your utilization rate based on each your individual credit instrument (like a credit card), or your total.  It's best to be safe and keep both low.

3. Dispute errors on your credit report

Errors on your credit report can negatively impact your credit score. It's essential to regularly check your credit report for errors and disputes any incorrect information with the credit bureau. In Canada, you can request a free copy of your credit report from Equifax and TransUnion once a year.

You can also use free tools in Canada the Credit Karma or Borrowell to monitor your credit absolutely free.

4. Limit new credit applications

Every time you apply for credit, it generates a hard inquiry on your credit report, which can lower your credit score. Limit new credit applications and only apply for credit when you need it.

5. Keep old credit accounts open

The length of your credit history makes up 15% of your FICO score. The longer your credit history, the better your credit score. Keeping old credit accounts open, even if you don't use them, can help improve your credit score.

So, What The Heck are TransUnion and Equifax?

The key difference between Equifax and TransUnion is the type of credit information they collect. Equifax focuses more on financial information, such as loans, mortgages, and credit card accounts, while TransUnion collects information on both financial and non-financial accounts, such as rental and utility accounts.