For this week’s No More Ls column, we’re covering how much more expensive credit can be when you don’t know how to improve your credit score.

Having a low credit score, and not being able to lift it can cost you money (in the thousands!), plus stress and time.

By Lisa Hannam

What’s the one hidden, major cost you may be sleeping on? If you guessed that it’s unused streaming services, expensive investing fees, avocado toast or eating out in general, you’re not wrong, but you’re obvious. The cost we’re talking about here comes from something only 21% of Canadians know about, according to a survey (Fuse Insights and Neo Financial polled 1,000 Canadians with household income of $150,000 or less): How to improve their credit score. And, seven out of 10 believe that credit scores should take into account a wider picture of their daily bills, including rent, utility and other bills. (They don’t typically.) 

But if your credit score is good, very good, or excellent , it’s not really a big deal right? (Credit scoring models vary; for Equifax, a score from 660 to 724 is considered good; 725 to 759 is very good; and 760 and up is excellent.) Whatever you’re doing, you’re doing right. 

How much does it cost to not know how to improve your credit score

If your score is considered poor (below 560 on Equifax’s scale) or fair (561 to 660), not knowing how to improve it could cost you in accessibility to credit and in high interest rates. Consider this example: 

You’re applying for a loan to buy a car, with a poor or fair credit score. You’re seen as a high risk to default (either not paying the loan back or not making payments on time), so you’re offered an annual percentage rate (APR) of 34.99% (35% is the legal limit in Canada). 

Over three years, you would pay $12,566 in interest. 

Let’s say you understood how your credit score was formulated, and you achieved a very good or excellent credit score, getting you an offer of 8.99% APR. That same loan would cost you $2,892 over three years. 

The difference between knowing how to achieve a high credit score and being stuck with a low one: almost 10 grand! 

But that’s if you’re approved at all with a poor credit score. There’s also the chance of being denied that loan. For some Canadians denied credit, that dominoes into other losses: not being able to buy a car, not being able to apply for a higher-paying job or access a side hustle, higher rent to live near work, not to mention the time sucks for grocery shopping, medical appointments, or a longer commute to more affordable housing. But even if any of these don’t matter to you, not being able to improve your credit also costs choice. 

The same survey revealed that 30% would take out more expensive or less favourable credit if turned down. 

The cost of not knowing how to improve a credit score hits home for Justin Manning, a financial advisor based in Langley, B.C. When he started his career as a fitness trainer, he found plenty of financial obstacles because of his credit score—like not being able to get a car loan (especially one of those 0% financing promotions, he says) and not having access to credit for his company. 

What don’t we know about our credit score?

We know to pay our bills on time. We know not to abandon debt. But the one thing that Manning says is a little-known factor Canadians can use to improve their scores is their credit utilization ratio. 

“That’s a big one that people just don’t often understand because there’s not a lot of information about it,” he says. “They think, ‘if my limit is $5,000, then I can spend all that $5,000. I know I don’t want to miss payments. That’s obvious. So I’ll make sure it’s paid off.’” What they don’t realize, he adds, is how much better off they’d be if they only used a much smaller portion of the total limit.

Here’s how to figure out your credit utilization ratio: 

1. Add up the total amount of debt you have on all your credit accounts (like credit cards, lines of credit, loans, etc.). 
2. Add up the total credit limits of all those credit accounts. 
3. Divide your total debt by your total credit limit. 

A good credit utilization ratio is under 30%, adds Manning.

While the calculations that produce your credit score are proprietary to Canada’s two credit bureaus, Equifax and TransUnion, there’s another easy way to move the needle on that score.

Why this all matters

While not technically a recession, the economy is tough. And Canadians are potentially in more need of credit than in the past, as six out of 10 surveyed by Neo, say it’s harder to make ends meet in the last few years—with only 44% saying they feel very financially stable. And many also feel it’s more difficult to build credit than in the past (nearly half, 46%, agree that it’s harder for their generation to build credit than it was for their parents and grandparents).

What you can do

Manning’s advice for Canadians just learning about their credit score and starting to build good financial habits: set up auto payments for your bills.

“I’m surprised how many people don’t know that you can set up your bill payments automatically versus having to manually pay it in your account,” he says, noting that automatic payments add a lot of value to your credit history, while avoiding unnecessary stress around bill time.

Lisa Hannam is an award-winning editor and journalist, and she is the Editor-in-Chief of The Get. She has previously been at the helm of celebrated Canadian publications, including MoneySense. She completed the Canadian Securities Course in 2024.

Read more from this issue of The Get:

1. True or false: Keeping credit card balance is good for building your credit score
2. MVP: Celebrity photographer Norman Wong on getting out of debt and following dreams
3. Is Botox covered by your health benefits?
4. Why are concert tickets so expensive?

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The Get is owned by Neo Financial, and the content it produces is for informational purposes. Any views expressed are those of the individual author and/or of The Get editorial team., not of Neo Financial or any of its partners or affiliates. The content is not meant to replace professional financial advice, and it should not be the sole source for making any financial decisions. Always do your due diligence before deciding what to do with your money. Read The Get’s editorial mandate.