How to Build Your Credit Score

How to Build Your Credit Score

Posted: September 14 2023

When it comes to adulting, few things carry as much weight as your credit score. A credit score, usually ranging from 300 to 850, reflects your credit risk and payment reliability. Lenders use it to decide on approvals and loan terms.  

Whether you're dreaming of that first car, or your dream home, a solid credit score allows you to access funds and leverage better lending options. 

There are 5 elements that determine how your credit score is calculated. We'll break each of them down and offer practical tips to help you boost it over time. 

1. Master Your Payment History (35%)

Making payments on time is a golden rule. Whether it's your credit card bills, student loans, or rent, consistency is key. Set up reminders, automate payments, and if you hit a rough patch, don't hesitate to reach out to your creditors to discuss possible solutions. Remember to always have funds available in your account so you don’t incur fees for non-sufficient funds. 

2. Be Mindful of Your Available Credit (30%)

Aim to use only a portion of your available credit – around 30% or less. This shows that you're not overly reliant on credit and can manage your financial commitments responsibly. Always try to keep your balances low and pay them off every month. 

3. Grow Your Credit History (15%)

Building a strong credit history takes time. The longer you've had credit accounts, the better it reflects on your credit score. However, make sure there is no fee for keeping the account open, especially if you're not using them regularly. A good credit history shows you've got a well-established financial track record. Your credit information is typically recorded for 6 years. 

4. Embrace Credit Diversity (10%)

Having a mix of credit types, like credit cards, student loans, and maybe even a small personal loan, demonstrates your ability to handle various financial responsibilities. Just remember, only take on what you can handle – the goal is responsible management, not overextension. 

5. Apply Wisely (10%)

Every time you apply for credit, a hard inquiry is recorded on your credit report. While it's normal to seek new credit at times, be cautious of how often you're applying. Multiple hard inquiries in a short period can raise concerns for lenders and potentially lower your score. Try to space out your credit applications and research thoroughly before applying. 
Now that you know the factors that go into calculating your credit score, it’s important to continually monitor your credit. There are two Canadian credit agencies you can use to access your credit report - TransUnion and Equifax. Monitoring your credit report will allow you to catch any inaccuracies, fraud or payments you might have missed like a parking ticket.  

Building your credit score is a gradual process. Keep these five key factors in mind and weave them into your financial habits to form a solid foundation that supports your financial future. 

Planning to purchase your dream home in the near future? Our Mortgage Approval 101 can help you get started! 

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