How to Get a Better Credit Score

Having a good credit score is essential if you ever want to open a credit card, apply for a mortgage or get a car loan.

Lenders will look at your credit score as a summary of how creditworthy you are and they’ll use that assessment to decide what interest rate you’ll pay.

Getting a better credit score is a relatively straightforward process, but it does require some strategy, effort, and time.

Since your credit score can significantly limit — or enhance— your financial prospects, it’s worth making it as strong as possible. Here’s how to do it.

1. Pay your bills on time

When you pay your bills, you’re establishing a payment history. Lenders want to see that you always make your payments so they can trust that you’ll consistently pay them, too.

Whether it’s for your credit card or mobile phone, bill payments are reported to the credit bureaus, and being late or missing one could lower your credit score.

Even if you’re in a challenging financial situation, try making at least the minimum payment, as it will keep your account in good standing.

2. Keep your credit utilization ratio low

The amount of available credit you’re using is known as your credit utilization ratio. For example, if you have a credit card with a limit of $1,000 with a running balance of $800, your credit utilization ratio is 80%.

Your credit utilization ratio is a big factor in determining your credit score. Even if you always pay your bill in full each month, the credit bureaus may not like that you’re often near your limit. Try keeping your utilization ratio under 30%, which lenders see as less risky.

3. Limit how often you apply for credit

Whenever you apply for new credit, the lender performs a hard inquiry on your credit report, which generally results in a temporary drop in your credit score. While one new credit application a year likely won’t be a big deal, applying for multiple forms of credit in a short period is not a good idea, since each inquiry could hurt your credit score. Lenders may also wonder why you’re trying to access so much credit and may be wary of approving you.

4. Use a secured credit card

Secured credit cards are a great option for people who want to rebuild or establish a credit score. These cards require you to deposit security funds that serve as your credit limit. The advantage of a secured card is that the issuer will report your payment history to the credit bureaus. Making consistent payments can help you build a better credit score over time. Once your score is in good standing, you can apply for a traditional unsecured credit card.

Understanding your credit score

Your credit score is a number between 300 and 900. Your credit score reflects how you’ve used credit in the past and may change based on how you’re currently using it.

Here are typical credit score ranges, along with their ratings:

Your credit score is calculated by two main credit bureaus in Canada: Equifax and TransUnion, using proprietary algorithms as well as scoring models that may be provided by companies like the Fair Issac Corporation, or FICO.

Borrowers with credit scores in the “good,” “very good,” and “excellent” range tend to get approved for more credit products, higher credit limits, and lower interest rates.

» MORE: How to check your credit score

Getting a better credit score takes time

There’s no instant way to improve your credit. According to the Financial Consumer Agency of Canada, it takes 30 to 90 days for new information to show up in your credit report, and each new piece of information could result in a small change to your score. That means it could take at least a year before you see any meaningful increase, such as moving from one credit score rating to the next.

As long as you follow the tips outlined above, your score will eventually rise. While it’s not a quick or flashy fix, responsible use of your credit is the only way to get a better credit score.