Even if you don’t know your score, there are some basic things you can do to keep it healthy.
But, why should you even care?
Credit scores are increasingly being used for more than just loan applications - that’s why. I’m talking employers, landlords, and service companies.
Can you imagine missing out on a high paying job, the apartment you love, or even utilities and services like your cell phone because you didn’t take care of your score?
1) Know your credit score - check often
There’s a famous quote from a 90s kids TV show - “knowing is half the battle” - and that’s really true when it comes to your credit score.
If you get regular updates to your score, you are much more motivated to improve it if it is low. You’ll also know whenever it drops and can take action to correct the problem right away.
Tip: Now you can get regular notification of your credit score for free, there is no longer an excuse not to know. FYI - checking your own score will never lower it.
2) Build your credit history early - start now
Start building your credit as soon as possible so your credit history will be long and distinguished. If you are really young, you can still get a cheap cell phone plan and pay it religiously over a period of years to get an early start.
Tip: Parents, you can even teach your kids to responsibly use credit by helping them get a low limit credit card or by putting your child’s name on the TV or internet bill and have them pay it monthly to start building a history.
3) Never miss payments - ever
Paying all your loans and bills on time as agreed is the biggest factor in determining your score.
Missing a single payment is usually not reported by most companies, but two successive missed payments almost always is. That’s considered to be “30 days late” and will show up on your credit report as a delinquency - and it will stay there for 6 years.
One 30 day delinquency will lower your score, but not dramatically. Miss a payment for more than 90 days, default on a loan, or file bankruptcy though and it is going to drag your score down a lot for a long time.
Make the minimum payments if you have to so you won’t be late. Or call and make special arrangements until you can pay to avoid being reported as late.
Tip: Check all your bills and log into all your accounts twice a month by setting a calendar reminder. That way you have a chance to review all charges and pay your balances well before your due dates.
4) Keep your balances low - always
There’s a fancy term called “credit utilization ratio” that means the amount of your available credit that you are using at any given time.
To get this number, first add up all your outstanding balances on all of your loans and credit cards. Then, add up all your credit limits and loan amounts to get your maximum available credit. Finally divide the first number by the second number to get a percentage.
Keeping this number below 30% will help boost your score. If you really want to maximize things, shoot for around 10%.
Tip: Pay down your balances several times a month to keep your utilization ratio lower all the time. There is no set date when companies report your balances to the credit bureaus so always keeping them paid down helps.
5) Your credit report probably has errors - fix them
About 1 in 4 credit reports contains an error and 1 in 20 contain serious errors that can significantly impact your score. In the worst case scenario you could be completely mixed up with someone else - even a deceased person or a terrorist in the worst case.
Tip: This page from the Financial Consumer Agency of Canada explains exactly how you can correct any errors that you spot.
6) Shop around quickly - 2 weeks
When a company checks your credit score, it lowers it. The more checks that are made, the lower your score will go. The reason for this is it starts to look like you are desperate for credit and might be having financial troubles the more you seek out credit.
Fortunately, the credit bureaus do know that comparing rates with multiple companies for the same loan is common practice. For that reason, they won’t reduce your score as much if you cluster a bunch of credit inquiries together when you are shopping around.
Tip: When getting a new loan, plan ahead and do all your rate comparing in a 2 week period to minimize the impact on your score.
7) Spread out new accounts - a few per year
Credit inquiries have the highest impact on your score in the most recent 12 month period. That means you should either cluster or space out your credit applications to protect your score.
Tip: Applying for 2-3 credit cards or loans per year is usually fine. Some people even open 10+ accounts per year and manage to keep decent scores. Just keep it reasonable and you will be fine.
Related: The Best Credit Cards in Canada
8) Keep older accounts - use them too
The more old and active accounts you have in your credit history, the better. The reason for this is because the credit bureaus compute the “average age” of your accounts. A higher number shows that you have a long established credit history.
Tip: Never close your oldest credit card as long as it doesn’t have an annual fee. The more old cards and accounts you can keep active the better. Put a small recurring charge on each old card you no longer use, like Netflix for instance. Pay those balances off every month, preferably with automated payments.
9) Limit new accounts - cancel if needed
Whenever you open a new account you are taking two hits to your score: one for a credit inquiry and a second for lowering the average age of your accounts. It’s OK to open new accounts, especially if you have older accounts to balance things out, just don’t go overboard.
Tip: If you have a newer account you no longer plan to use, closing it is probably better than keeping it active to increase your average credit age. You’ll also have one less account to manage or forget to pay.
10) Increase your available credit - not too high
Having higher credit limits on your accounts can actually improve your score because it helps lower your credit utilization ratio as a side effect. If you tend to use a lot of your credit limit even though you pay your balance in full every month, try calling to get your limits raised.
Tip: Don’t raise your limits way too high. It can look risky to lenders who think you will use up all your credit and skip town or declare bankruptcy. Even if your score is high, they may still decline you or ask you to lower your limits and close accounts just to be safe.
11) Vary account types - there are many
It helps to have a diverse credit history that shows proper usage of multiple types of credit products. Don’t go overboard, but diversifying your accounts will help demonstrate your ability to use credit responsibly. Here are some ideas to get your wheels turning:
- Credit cards - regular, rewards, secured, store
- Lines of Credit - home equity, secured, unsecured, overdraft
- Loans - standard, car, mortgage, student
- Services - electricity, home heating fuel, internet, TV, home phone, cell phone
Tip: Not all companies report positive payment history to the credit bureaus but all of them report missed payments. Service companies like your electricity or cell phone are the mostly likely NOT to report good behaviour. If you are trying to build credit, ask service companies if they will report your positive payment history.
Related: Save Money on Your Bills
12) Avoid 100% utilization loans - make down payments
Credit utilization ratio is calculated across all of your accounts as a whole, but it can also be calculated on individual loans and products. For that reason it is wise to limit the number of 100% utilization loans you take out. Car loans and mortgages are two examples where you are using the entire amount of the loan when it starts.
Tip: You can often put a big down payment at the very start of a loan to reduce your utilization ratio. Make sure this payment goes directly to the loan provider and not the company you are making the purchase from.
Don’t Go Overboard
One thing to remember is that as long as you are paying your bills on time and responsibly using your credit, then your credit score will be fine.
There is no need to go overboard keeping dozens of accounts open to lengthen your average credit age or obsessively paying down your credit cards every single day. Take action on a few of these tips to nudge your score in the right direction - but don’t obsess over it.
Remember to check your score for free from time to time to make sure you are on track.
Finally, don’t worry if your score fluctuates - that’s normal. It will go up and down naturally as you make use of credit. It will never be the same at both Equifax and Transunion. In fact, even the same credit bureau can report different scores depending who is asking - they use different calculations for different industries.