What Makes Up a Credit Score in Canada and How Can You Improve It?
Payment history, credit use, account age, recent applications and credit mix: what weighs on a score and the habits that improve it.
In this article
A Canadian credit score summarizes your borrowing record using five broad types of information: paying bills on time, how much of your credit you use, the age of your accounts, recent credit applications and the mix of products. According to the Financial Consumer Agency of Canada (FCAC), paying on time is the most important factor. Credit bureaus such as Equifax and TransUnion each use their own models. Two different numbers for the same person are therefore normal. Before applying for a mortgage, review your report, correct errors and stabilize your habits instead of looking for a quick trick. Think of it as a long project: each factor responds to steady habits, and the order matters less than consistency. A lender looks at the whole picture. A calm, well-documented file usually reads better than one that has just been reshuffled.
On-time payment: the heaviest factor
The FCAC states that payment history is the most important factor in a score. A missed or late payment can be reported to the credit bureaus and stay there for a defined period. If you cannot pay the full balance, pay at least the minimum. Warn your lender before the due date if you expect a problem. Payment alerts from your institution help prevent oversights. Do not skip a payment even when you dispute a charge: resolve the dispute in parallel. Automatic minimum-payment debits are a simple safeguard, provided the account always holds enough money. Also pick one reliable payment date for each bill and put it on the calendar, so that a busy week does not turn into a missed due date. If money is tight in a given month, contact the lender early. That is almost always better than saying nothing, because you can discuss options before a late payment is reported.
Credit use: the share of your limit you employ
The utilization rate compares the reported balance with the credit limit. The FCAC suggests using less than 30% of your total limit. For example, $1,000 on a $5,000 card is 20%. Never exceed the limit. The balance reported to a bureau is often the statement balance, so a card paid in full every month can still look heavily used. Keeping the rate low during the month helps. Reducing card and line-of-credit balances is generally more effective than adding products. Your budget stays the priority, though: a higher limit is not extra spending capacity. Also consider which cards carry the balances. Spreading a modest balance across several products can leave each one looking more used than a single card would. Paying down the card closest to its limit first is a sensible order, as long as every minimum payment is still made on time.
Account age and recent applications
Older accounts help. Keep old accounts open, especially those with no annual fee, and use them occasionally so they stay active. Opening a new account can lower the average age of your file. Each credit application that counts (card, loan, mortgage) can also leave a mark. The FCAC recommends applying only for the credit you need and avoiding closely spaced applications. For an auto loan or mortgage, comparing offers within a 2-week period lets the bureaus treat the inquiries as one. Checking your own file has no effect on the score.
Credit mix and cautious borrowing
Holding more than one type of credit, such as a card, an auto loan and a line of credit, can show that you manage different products. Do not borrow to improve a score, however: the FCAC notes that excessive debt hurts the file. This is the lowest-priority of the five factors. A thin file, for a newcomer or a young adult for example, is built with a single well-managed card, regular payments and time. Patience matters more than the number of products.
Check the report before applying for a mortgage
The score comes from the credit report, so an error in the report flows through to the score. Obtain your report from Equifax and TransUnion and look for unknown accounts, wrong balances or misreported limits. Then request a correction from the bureau and the lender concerned. Do this months before applying, since a correction can take time. Scales and labels (good, very good) vary by bureau. Rely on what the lender or broker tells you rather than a remembered threshold. See also our article on correcting an error in your credit file. Keep a copy of every request and every answer: a correction acknowledged in writing is easier to follow up on if the report is not updated. Once the report is clean, avoid large changes just before the application. Stable habits give the lender a more predictable file.
Quebec scenario: three months to prepare for a mortgage
A tenant in Quebec City plans to apply for a mortgage in about six months. She gets her report from both bureaus, finds a closed card still reported with a balance and requests a correction. She sets automatic debits at the minimum payment, then pays the balance before the statement date to keep her utilization low. She keeps her oldest account open and postpones a financed furniture purchase to avoid a new credit application. The figures in this scenario are assumptions to replace with those in her own file. Her broker will then explain how lenders read her score, without promising an outcome.
Checklist
- Get the credit report from Equifax and TransUnion
- Look for unknown accounts and incorrect balances or limits
- Request correction of errors from bureaus and lenders
- Set automatic debits to at least the minimum payment
- Pay every bill on or before the due date
- Aim for less than 30% of total credit limit
- Keep old no-fee accounts open
- Avoid closely spaced credit applications before the mortgage
- Compare mortgage offers within a 2-week period
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