Building your credit score in Canada and why it's important

Whenever you borrow money from a bank, a credit bureau learns specific information about you — including whether you’ve made your monthly payments on time, if you’ve missed payments and the total amount of debt you have outstanding. These factors are then used to calculate your credit score, which is a three-digit figure on your credit rating report that shows lenders how likely you are to repay a loan. 

Generally speaking, credit scores tend to fall under these categories: 

• Low credit score: 300-660 
• Good credit score: 660-750
• High credit score: 750-900

In Canada, major purchases often involve getting a loan from a bank. The “lenders” want to know how you’ve previously handled credit in order to predict how likely you are to pay it back in the future. Whether you’re looking to rent a home, buy a home, purchase a car, open a business or even in some cases, get a job, your credit score may be used to decide whether to approve your loan application.  

Not having a good credit score could mean that if you find yourself in a competitive situation to buy or rent a home, you might not be able to secure it. That’s why it’s important to start establishing and building your credit score and history as soon as possible when you arrive in Canada.

Your score is calculated based on a number of factors, but here are some tips to help you build good credit.

Always ensure you’re paying off your balance on time. Each lender tells you how much you have to pay back with a due date for your payment. If you can’t pay the full amount, make sure to at least pay the minimum amount provided to you by your bank. Never miss a payment even if the bill has any disputed charges or other issues. 

Avoid exceeding your credit limit. For instance, if you have a $5,000 limit on your credit card, don’t go over this amount. Your credit score will suffer if you use a credit card beyond its allowed borrowing limit. Try to use no more than 30% of your credit limit. Having a bigger credit limit and using less of it each month is preferable. 

Monitoring your credit should become a weekly habit once you are a credit user. Banking apps are your best friend as they provide you easy access to all of your transactions, balances and minimum payments you need to make on a monthly basis. This helps you plan your spending and keep track of your payment deadlines.

Your credit score will benefit from having a credit account open and in use for a longer period of time. If you have credit accounts that are relatively new, your credit score can be lower. The new account is regarded as new credit if you move an older account to it. 

Even if you don’t need an old account, think about keeping it open and using it sometimes. If the account is open but you don’t use it, make sure there isn’t a fee for keeping it open.