Whether you’re new to using credit, a newcomer to the Canadian financial system, or you’re repairing a low credit score, we’ll show you actionable steps for building a credit history with Equifax and TransUnion.
What is your credit score?
Lenders need some way to determine how creditworthy a person is before issuing them a credit card or lending them funds. That’s why they use credit scores.
A credit score is a three-digit number (from 300 to 900) that reflects how well you manage credit—for example, whether you make loan payments or pay your credit card bills on time. The higher your score, the more creditworthy you are considered to be. Your score is based on your credit report, which is stored and updated by Canada’s national credit bureaus, Equifax and TransUnion.
Equifax and TransUnion look at the same factors, but weigh them a little differently, which is why your credit score can vary by bureau.
Here’s the general breakdown of factors and how much they contribute to your credit score:
- Credit history: 35%
- Credit utilization: 30%
- Credit history: 15%
- Mix of credit types: 10%
- Credit inquiries: 10%
According to Canada’s Financial Consumer Agency, making payments on time and keeping balances low are two of the biggest factors affecting your credit score. Credit history reflects how often you pay your bills and repay your debts on time. As you might guess, the longer your credit history, the better, since it gives lenders more details about your repayment habits.
MoneySense Tip
Want to see if you have a credit score? You can access your credit score for free through Equifax and TransUnion. It’s a good idea to review the details that went into your score (if you have one) so you can correct any errors that might be damaging it.
How to build a credit history in 6 simple steps
Regardless of where you are in your credit-building journey, you can establish and grow a strong credit score with these simple steps.
1. Open a Canadian chequing account
Although this type of bank account doesn’t affect your credit score, managing a basic chequing account can help you develop good money management habits. Plus, having a chequing account makes it easier to deposit funds and make payments.
2. Get a starter or secured credit card
You might be eligible for an unsecured credit card, where you’re given a credit limit, or you may need to get a secured credit card where you make a deposit that becomes the card’s credit limit. Either way, as long as the card issuer reports your payments to a credit bureau, you’ll establish a credit history.
featured
Best for guaranteed approval
Home Trust Secured Visa Card
Build your credit with guaranteed approval regardless of your credit history for no annual fee (deposit required).
GO TO SITE
Interest Rates:
19.99% purchase, 19.99% cash advance, N/A balance transfer
featured
Best for debt management
MBNA True Line Mastercard credit card
An ideal option for cardholders looking to consolidate and manage debt.
GO TO SITE
Interest Rates:
12.99% purchase, 24.99% cash advance, 17.99% balance transfer
3. Use less than 30% of your available credit
It can be tempting to spend all the money you’re offered, but repaying your entire credit limit can be challenging. Spending all of your available credit also shows the credit bureaus that you’re stretched for funds and need to borrow to make ends meet. Maxing out your cards will damage the credit score that you’re hoping to improve.
Try to keep your credit utilization ratio below 30%.
4. Pay every bill on time
This is the second-most important credit-building factor. When you make regular payments on your credit card, the issuer informs Equifax or TransUnion. The bureaus see that you can handle credit, and your score will improve over time.
5. Keep old accounts open
This might seem like a strange step, but it’s strategic. Let’s say you have a credit card with a big balance, but you worked hard to pay it off and now you want to cancel it. Before you rush to close the account, consider how long you’ve had it. If you’ve had the card for years or it’s one of your oldest accounts, closing it could remove an important part of your credit history. It’s better to keep it open, even if you choose not to use the card anymore.
6. Check your credit report regularly
Remember, you have free access to your credit score reports through Equifax. Take the time to read through your credit report at least a few times a year. This way, you can spot errors and contact the credit bureaus before the incorrect information can damage your score.
Other credit-building options
These are great actions for anyone—especially students and newcomers. We also want to point out a few credit-building options that aren’t as readily available.
