Tips for Building, Maintaining, and Repairing Your Credit Score

A healthy credit score is a key aspect of managing your finances, indicating good financial standing and enabling access to better loan and credit rates.

What's in a number? A credit score is a three-digit indicator of your creditworthiness, with higher scores signalling lower risk for lenders. Ranging from 300-900, your credit score influences your access to loans, credit cards, housing, and even job opportunities.

Credit scores are based on several factors including timely payments, outstanding debts, and length of credit history. Good scores reflect a history of responsible borrowing and financial behaviour, while bad scores can result from negative factors like missed payments and exceeding credit limits.

A “good” credit score in Canada is 660 and above, according to Equifax. A “bad” credit score is considered any score below 560.

What Is A FICO Score?

“A majority of lenders in Canada, use FICO® Scores, as the industry standard for determining credit worthiness.”

FICO Score

Credit scores are generated by different algorithms, which is why you may see a different number depending on where you’re looking.

A FICO Score is not a credit bureau in Canada, but rather a scoring system that is used by many lenders. A FICO Score is risk-based, which is why many lenders will go by this score when considering your application. It’s calculated by the following:

35% - Payment history. Whether you've paid past credit accounts on time.
30% - Amounts owed. Amount of credit and loans you are using.
15% - Length of credit history. How long you've had credit.
10% - New credit. Frequency of credit inquiries and new account openings.
10% - Credit mix. Mix of your credit, retail accounts, installment loans, finance company accounts and mortgage loans.

Where to Find Your Credit Score?

Don’t know your credit score yet? In Canada, there are 2 main credit bureaus where you can request this information: TransUnion and Equifax.

There are also third-party services like Credit Karma, which can show you your credit score from both credit bureaus, and update your report on a consistent basis.

You can also check your score directly with FICO Score, which may give you the best understanding of what a lender will see.

Checking your credit score on one of these services is considered a soft inquiry, which means that it won’t have an impact on your score. Don’t be afraid to log in on a monthly basis to ensure you’re familiar with your credit score as you work to improve it.

Building Credit

If you have no credit history, that means you’ll need to take some steps to build your credit to begin with. If you’re just starting out, you can:

Get a secured credit card. Unlike unsecured credit cards, this type is backed by a cash deposit that serves as collateral.
Apply for a credit-builder loan made specifically for individuals who want to establish and build credit scores.

Maintaining Your Credit Score

The work doesn’t stop once you've built up your credit score! Even if you’re happy with your score, it’s important to maintain good habits to ensure it doesn’t fall. Keep in mind that credit scores are updated monthly, so it has the potential to rise and fall from one month to the next.

Here are some simple guidelines to maintain your credit score:

Always pay bills on time. Setting up reminders or automatic payments can help make sure you don’t miss any crucial deadlines.
Don’t max out your credit utilization. The Financial Consumer Agency of Canada recommends using less than 30% of available credit. If you can’t pay in full, try to pay more than the minimum amount to bring down your balance.
Keep accounts open. Maintain a mix of credit accounts (card, loans, mortgage) and avoid closing old accounts, unless necessary, to show a longer credit history.

Repairing Credit and Reporting Issues

What if your credit score has fallen, or you’ve just recently started paying attention to it? That means it’s time for some damage control. The good news is that your credit score is totally fixable, but you’ll need to take action.

Step 1: Understand Your Credit Report

The first step towards rebuilding your credit is to understand the state it’s in. Take a look at your report, and look for the following:

How many accounts do you have?
How many late payments have you had?
What is your credit utilization rate? Which accounts have the highest credit utilization?
How old is your oldest account?

Understanding each of these items can help you make a realistic plan for rebuilding your credit: For example:

If you notice that you have a high number of late payments, setting up automated minimum payments could be a small action that has a positive impact on your score.
If you notice that your oldest account is only 1-2 years old, you can keep in mind that it will take some time for the score to build back up, since this factor is out of your control.
If you notice that you have an account that’s been forgotten, or a high debt that seems to be the main source of the problem, you can take action to handle that debt right away.

Step 2: Address Top Problems

Now that you understand your credit score, it’s time to address the issues that have caused it to decrease. Oftentimes, a large debt or a problem with making payments can be the culprit. If this is combined with other factors, it can have a serious impact on your score.

It’s important to identify which levers you can pull to make a difference. If you’re overwhelmed with payments, consider negotiating with creditors or consolidating your debts to simplify.

Step 3: Monitor Your Credit Report

Don’t just check your credit report once. Regularly review your credit report to stay familiar with your progress, what’s making an impact, and more. This can also help you catch potential errors or suspicious activity. You can dispute any inaccuracies you notice, as they may impact your score.

Parachute’s Credit Building Dos and Don'ts

DO: Schedule minimum payments for all accounts and prioritize making them

DON’T: Apply for unnecessary new debts

DON’T: Close your oldest accounts (This will ensure that you have as long of a credit history as possible)

DO: Understand your credit limits and try to use less than 30% of your overall credit

DON’T: Apply for unnecessary new services that require a hard inquiry (like switching phone providers). If absolutely necessary, plan and spread out these types of inquiries.

DO: Consolidate high-interest debts where possible, to simplify your payments and decrease overall credit utilization

Conclusion

While there's no shortcut to increase credit score quickly, improving credit is possible with diligence and good habits. By being proactive, you can achieve a good score and unlock better loan rates that save you money in the long term.

Everyone’s financial situation is different, and understanding how credit score impacts financial opportunities is only the first step. For those seeking to manage debt and streamline payments, Parachute offers tailored solutions to help you regain control of your finances.

Click here to learn more about how we can support your financial goals.