How to build credit in Canada

Sorry. There's no magic formula to build credit in Canada. But, you can start taking steps today that will have a positive impact on your score within just a couple of months. It is important to remember that when it comes down to building credit in Canada, everyone's credit score differs. Some of you may be starting with poor credit or no credit score at all. Checking your credit score to see what your starting point truly is will give you a good indication of how far you  have to  go to get a good -  or even great - credit score. 

What is your starting credit score? 

You can  do a free credit check  on our website. You can also use Borrowell to get your Equifax credit score for free and receive weekly updates. Getting your  free credit score in Canada will give you a better idea of how long it will take to improve your credit score.  It’s also a good idea to  get your free credit report  as well.  

A credit score is  a  three-digit  number  that  is  calculated from the information in your credit file. Your credit score is used by lenders to assess your credit risk. A credit report is a summary of your financial reliability— this is your history of paying debts and other bills.  On your credit report, you may see late payments or borrowed funds you may have defaulted on. You can also see your positive activities, such as paying more than the minimum payment each month. You’ll see how much credit you have to your name, and how much credit you use. 

These factors add up to your credit score and can have a big impact on  how long it takes to improve  your score. It will also help you identify what you can do to improve your score. Not sure how to read your credit report? Check  this  article  on how to read your credit report.  

What if you have no credit history? 

If you have no credit, and therefore have no bad credit decisions to correct on your report, building credit in Canada can be faster. All you have to do is get yourself one or two credit building products, such as a secured card or a credit  builder loan. When you use these products responsibly you will notice an improvement in your credit score.  Keep in mind that secured cards are different than unsecured cards and prepaid cards. The Refresh secured card reports to both Equifax and TransUnion credit bureaus and the others do not. 

What if you’ve declared bankruptcy? 

If you’ve  declared bankruptcy  or are  thinking about it,  you should know that  declaring bankruptcy  will remain on your credit report for up to seven years  and it will have an impact on your credit score. It is still possible to build your credit in Canada with bankruptcy on your file, but you will not see the full benefits of having good credit until the 6 to 7-year waiting period is over.  

The same goes for a consumer proposal, with one  main  difference: a consumer proposal will only stay on your credit report for three years.  Learn about the  impact of a consumer proposal  on your credit score. 

Build credit in Canada - 4 tips 

When you think about increasing your credit score, you might assume a long and drawn-out process that requires a lot of self-discipline and sacrifice. However, for the most part, this is true but not always the case. Here are 4 tips to build credit in Canada faster:

1. Pay off big portions of debt at once is a great way to build credit in Canada:

This strategy isn't always possible, but if you have savings or a large tax refund, putting that money towards your debt and paying your credit card balance in full will result in a boost to your credit score. Your credit usage percentage is a huge factor in determining your credit score - the lower it is the better. If you can lower your usage below 30% with one payment, you'll see a big difference in your credit score. 

2. Accepting a credit increase 

Card issuers love to give credit increases. Accepting an increase in your credit limit will lower your credit usage percentage immediately. Here’s how it works: If you’re carrying a balance of $5000 on a card with a $10k  limit, your usage percentage is 50%. If you have your limit increased to $15k, your usage percentage is now around 33%. Without even lowering your balance, you’ve improved your usage percentage which will improve your credit score. The risk with this strategy is that an increased credit limit can result in more debt if you can't manage your spending. 

3.  Getting a variety of credit products 

Mixing the types of credit  products  you have can be a great way to improve your score. You want a healthy mix of installment and revolving credit for diverse reporting. Two of the best products that help boost your credit score are a secured card and a cash-secured loan. 

A secured card is low risk to lenders because you’ve put down some money as security. If you take out a secured card, you should pay your minimum payment every month. Even though your credit is secured, your good payment behaviour is going to be reported to the credit bureaus every month. It is key to making  sure your payments are made in full and on time every month to avoid any negative hits on your credit report. 

A  cash secured loan is also a credit-building loan. You make regular repayments of an installment loan (which is reported to both credit bureaus) and at the end of the program, you have a nice stash of cash to use. And, more importantly, a shiny new credit score! The faster you bring your debts down, the quicker your credit score will rise and show on your credit file.  

4. Fixing  mistakes  on  your  credit  report 

This one will only work if you've found errors or debt on your credit report that shouldn't be there. Reporting errors occur more often than you may think therefore, check your credit report frequently. As a Canadian, you are entitled to one free credit report from each credit bureau per year. Therefore, we recommend paying for unlimited access to your credit report so that you are aware of changes in real-time. If you notice a mistake on your credit report, deal with it as soon as possible in order to reduce the damage to your credit score.  

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Refresh financial offers custom credit building solutions to help you build your credit score FAST.