Is your credit score causing you to be charged higher rates on your car loan or making it harder to qualify for a credit card? It’s time for a change. Approximately 7% of Canadians have a below average credit score.

A credit score is based on your payment history, debt and credit length. It is used by lenders as a way to assess your risk as a borrower (meaning how likely you are to be late and miss payments), directly affecting loan approval and interest rates. Your credit score impacts your ability to secure a mortgage, get approved for loans, and even land a job, making it a crucial factor in every Canadian’s financial success. 

Building your credit score takes effort, but with the right behaviours, you could help increase your credit score in a short time. This credit score explainer explores both quick fixes and long-term habits for maintaining lasting credit health.

Why does your credit score matter?

If you’ve ever wondered how your credit history affects your everyday life, it’s worth understanding what a credit score is and why it matters. Your credit score can impact many aspects of your life, both financially and personally. A good credit score (between 670 and 739) can help you qualify for loans and secure better interest rates, as well as increase your chances of getting approved for rental applications or a job. It also encourages responsible borrowing by demonstrating your ability to manage debt. 

And the opposite is also true. A poor credit score can result in high interest rates, stricter loan terms, credit denial, and larger security deposits for rental properties.

Understanding how credit scores can influence decisions like credit approvals, loan terms, and rental applications can enable access to better financial opportunities and a secure financial future.

4 ways to improve your credit score

When you need to make quick improvements to your credit history, the following four ways can help you boost your credit score:

1. Pay down credit card balances 

Paying off credit card debt is a solid move. But know that if you aren’t able to pay it off completely, making more than the minimum amount helps too. After all, credit bureaus look at your overall debt in relation to your access to debt; meaning how much credit have you used (a.k.a. your credit utilization). So, paying down credit cards with high balances helps reduce credit card debt, which reduces your debt-to-income ratio and improves your overall financial health. It's a good strategy to keep your utilization below 30% and ideally under 10%. 

2. Request higher credit limits without opening new accounts

Another effective method to improve your credit score is to request higher credit limits from your current credit card issuers. This helps reduce credit utilization without the need to open any new credit accounts. Just be sure not to spend more than you did before your limits were raised.

3. Dispute any errors on your credit report

Don’t let errors harm your credit score. Check your credit reports at least twice a year through services like Equifax® and TransUnion®. Since each bureau may have different information, it’s important to review both. Look for discrepancies such as incorrect balances, late payments, or accounts that don’t belong to you. If you spot any inaccuracies, dispute them directly with the credit bureau. Errors may not always be fixed immediately, but removing negative items can improve your credit score once the correction is made.

4. Set up automatic payments to avoid late fees

If remembering to pay your credit card is the issue, it’s time to automate. Late payments can severely damage your credit score, so setting up automatic payments is key. You can automate payments to at least cover the minimum amount due each month, ensuring you never miss a payment. Regularly review your balances to make sure you have enough funds to cover your bills, and consider automating additional payments to pay off your balance faster. This helps avoid late payments and protects your credit score.

For more practical tips, check out these simple ways to build your credit score.

Tips to Keep Your Credit Strong Over Time 

While the above quick fixes can give your credit score a short-term boost, building strong credit over time requires consistent habits. Here’s how to get started.

1. Maintain low credit utilization: Avoid maxing out your credit cards to keep your credit utilization low and ensure that your balances remain manageable.
2. Gradually diversify your credit mix: A credit mix means the different types of credit you have access to, such as a credit card, line of credit, mortgage, car loan, and of course credit cards. If you only have revolving credit (such as credit cards or lines of credit), consider adding an installment loan (e.g., personal loan) to improve credit mix and potentially boost your credit score.
3. Keep accounts open: Don’t close long-standing accounts unnecessarily, such as credit cards, lines of credit, or bank accounts you've had for years. Keep them open, but be cautious of high fees that could make keeping them open not worth it. Credit bureaus in Canada view long-standing accounts positively, as they demonstrate your ability to manage credit responsibly over time.
4. Avoid unnecessary new credit applications: Multiple credit applications within a small period of time can trigger hard inquiries and lower your score. While diversifying your credit mix is important, avoid applying for too many credit products at once. Apply only when necessary and ensure you're prepared to manage the new account responsibly to prevent negatively impacting your score.

How credit scores are calculated

While credit bureaus in Canada don’t share their calculations for determining credit scores, these financial behaviours are known to have an impact. 

• Payment history: Missed payments can result in a lower credit score, while regular, on-time payments grow it.
• Credit utilization: This refers to how much credit you’re using out of your total available credit. High credit utilization, typically above 30% of your available credit, can lower your score. For example, if you have a $5,000 credit limit, using more than $1,500 would be considered high utilization. Aim to keep your credit utilization under 30%. Note that this calculation does not include mortgage debt.
• Length of credit history: Having accounts for years demonstrates long-term financial responsibility. While it's not the act of closing old accounts that's harmful, long-standing accounts are beneficial because they show a track record of responsible credit management. Closing these accounts can shorten your credit history, which may negatively impact your score.
• New credit inquiries: Hard inquiries occur when you apply for credit, such as a loan or credit card, and can lower your score temporarily. Soft inquiries happen when you check your own credit or when businesses review your credit for pre-approval offers; these do not affect your score. To maintain your score, reduce hard inquiries and only apply for credit when necessary.
• Types of credit used: Having different types of credit demonstrates your ability to manage various financial products.

Advanced strategies and considerations for building credit

Ready to move beyond the basics? Use these advanced strategies to help boost your credit score and get a head start on building excellent credit.

• Use a secured credit card: For Canadians with no credit or poor credit, a secured credit card is an excellent option. When you use a secured card, you provide a deposit that sets your credit limit. Choosing a secured credit card that reports to major credit bureaus can boost creditworthiness over time. While it can improve your credit score gradually, it’s not a quick fix.
• Consider a credit-builder loan: Credit builder loans are ideal for Canadians with limited or no credit history, allowing them to build credit while making manageable payments. Improvements to your credit score may take time, but making payments on the loan can help build and establish credit for those committed to improving their score. 
• Understand the impact of major life events: A job loss, separation, and other unexpected expenses can put pressure on your credit score. To minimize the impact, it's crucial to act early. Contact your lenders to discuss your situation and ask about flexible payment plans, such as adjusting amounts or extending deadlines, to make your debt more manageable. Regularly monitoring your credit report will help you stay aware of changes, like missed payments or rising debt, that could affect your score. By taking these steps, you can reduce the negative effects on your credit and help support your financial recovery, which means getting back on track with your finances and rebuilding your credit over time.
• Monitor your progress: Regularly reviewing your credit reports can help you catch issues early. Canadians can access their reports through Equifax® and TransUnion®. Neo Financial also offers credit score monitoring through select memberships and credit cards.

Fast track your credit score growth with Neo Financial’s secured card

Do you want to build or rebuild your credit? Neo Financial's Secured Neo Mastercard® is a mobile-integrated card that allows you to track your spending and payments conveniently while building a strong credit history. 

Key benefits of the Secured Neo Mastercard:

• Low security fund requirement: You can start with as little as $50! This flexible option is perfect for those new to credit and rebuilding after financial setbacks.
• Regular reporting to credit bureaus: Neo Financial guarantees that your payments are accurately tracked with Canada’s two credit bureaus, Equifax® and TransUnion®, ensuring your credit-building progress is properly recorded.

Many credit card holders have had positive experiences rebuilding their credit with Neo Financial. One customer appreciated the flexibility of starting with any amount and gradually increasing their credit limit. They also praised the easy-to-use app, which allows them to track their spending instantly, along with enjoying cashback bonuses at partner stores. 

Neo Financial empowers Canadians to improve their financial credit scores. It’s leading the way through its modern, tech-forward solution user-friendly app, instant digital cards, and transparent terms. 

Ready to (re)build your credit? Apply for the Neo Mastercard today and start working towards a stronger credit profile. Learn more about how it can help you rebuild your credit and take the first step toward a better financial future!

Key takeaways

• Pay off your credit card balances and set up automatic payments to help improve your credit score. 
• Maintaining low credit utilization and diversifying your credit mix are long-term actions to ensure your credit stays strong.
• Neo Financial’s Secured Neo Mastercard® offers an effective way to help build or rebuild credit with a low security fund requirement and regular reporting to Canada’s two major credit bureaus.

Frequently asked questions (FAQs)

How long do credit improvements take to show up on my credit history?

It can take from a few weeks to a few months to see changes in your credit score, as updates are typically made monthly by creditors. Consistently making payments and other positive actions can be reflected in each cycle.

How quickly can I raise my credit score by 100 points?

Results may vary, but you can raise your credit score by 100 points in a few months if you address key factors such as payment history and credit utilization. 

How often do credit scores get updated?

Credit scores are typically updated monthly when creditors and lenders report to Equifax® and TransUnion®, though timing depends on the credit bureaus. 

Does checking my own credit report hurt my score?

No. Checking your own credit report is considered a soft inquiry, which does not affect your credit score. A hard inquiry, on the other hand, occurs when a lender checks your credit as part of an application for credit (such as a loan or credit card). Hard inquiries can cause a small, temporary dip in your score, but the impact is usually minor if you have a healthy credit history.

Can I remove a late payment from my credit report?

You can request a goodwill adjustment from your creditor to remove a late payment notice, but it’s at their discretion. Errors can also be disputed with Equifax® and TransUnion®, though removal depends on the situation. 

Should I pay collections or wait for them to stop calling?

Paying a collections agency for an outstanding payment can improve your credit score, but the collection record can often remain on your report for years, even if the debt is marked “paid.” Check your options with the credit bureaus (Equifax® and TransUnion®) or a financial advisor, as paying may not always be the best strategy, especially if the debt is old and unlikely to be removed right away. Be mindful of the risk of legal action or further collection attempts.

Which to pay off first: a large payment or a small one?

It's generally seen as better to pay off a large balance first. That’s called the avalanche method (getting rid of high-interest debts first), as it reduces overall interest costs and helps lower your credit utilization quickly. The snowball method (smallest balances first) can be motivating (think of all those $0 balances), but it may take longer to improve your credit score.

What's a rapid rescore, and is it available in Canada?

A rapid rescore allows quick credit report updates in the U.S., but there’s no similar option in Canada. Canadian lenders may request expedited updates from credit bureaus, but Canadians cannot request it themselves.

When should I consider professional credit counselling?

Consider hiring a professional credit counselling service if you're dealing with persistent debt, financial anxiety, and/or are at risk of default. This can provide guidance and strategies to regain control of your finances before considering bankruptcy.

This article provides information and is not intended to provide any personalized tax, investment, financial, or legal advice. You are encouraged to seek professional advice before making financial decisions.

The Neo Mastercard, Neo World Mastercard®, Neo World Elite® Mastercard and Neo Money™ card are issued by Neo Financial™ pursuant to license by Mastercard International Incorporated.

Credit score monitoring is provided by TransUnion® and is only available to customers through its Build and Grow membership packages.