Good habits that can help you improve your credit score

Your credit score affects your chances of getting approved for a credit card, a mortgage or a personal loan. It can influence your chances of getting lower interest rates on loans, and it may even impact your ability to land a job or rent an apartment.

What is a credit score?

A credit score is a number, usually between 300 and 900, that indicates your creditworthiness. The higher your score, the better. Numerous factors affect your score including how much debt you carry, whether you pay your bills on time, and your credit history. (Not everyone has a credit score. If you’re a student or a newcomer to Canada, or if you haven’t used credit in a while, the credit bureaus may not have enough information to determine your score.)

The higher your score, the greater confidence banks and other lenders will have in your ability to pay them back. Apartment owners and potential employers could also ask to see your score—making it a measure that can affect you in many important areas of your life.

Your best bet is to be proactive with your finances. With intention and persistence, you can build and maintain your creditworthiness, even if you’ve made money mistakes in the past.

Your credit score is also tied to your payment habits (namely, your ability to pay your credit card balance). Being honest with yourself about money can go a long way to improving your finances—and helping your future self. “I’m big on encouraging people to tap into their emotions,” says Raia Carey, a certified life coach and spokesperson who has partnered with Capital One Canada to encourage financial wellness. Paying attention to our thoughts and emotions around spending and saving can help us be more self-aware about money—a great first step to rebuilding a credit score.

Seven good money habits of people with great credit

A good credit score is part of your financial wellbeing, but it can be daunting to engage with if you’re unfamiliar with how it works or how you can influence it. “I think access to information is key,” Carey says. “I wish I had been taught about my credit score at a much younger age.”

These seven habits will help get you started:

1. Cross-check your credit score

A great first step is to learn your current credit score. You can use Capital One Canada’s helpful Credit Keeper tool, which gives you free access to your credit score. You can also request a free credit report, which may include your score, from Canada’s two credit bureaus, Equifax and TransUnion, online or by mail. Each bureau uses a different algorithm, so your scores may differ.

When you get your reports, review them carefully for errors. Common mistakes include discrepancies in your personal information, incorrect records, expired negative records and accounts that aren’t yours, which could signal identity theft. Report any inaccuracies to the credit bureaus.

2. Pay your bills in full and on time

Lenders report your payment history to the credit bureaus, which use this information to help determine your credit score. When you pay your bills in full and on time, it’s strong evidence of creditworthiness, so make complete and timely payments a priority.

That said, many people experience periods when they need to defer payment for a time. If you can’t pay a bill in full, make at least the minimum payment amount by the due date. Use your bank’s mobile app or automatic payments to help stay on top of your deadlines.

3. Minimize “hard hits” on your account

Any inquiry into your credit report is called a “hit,” but not all hits have a negative impact. When you use the tool Quick Check from Capital One to see—before you apply—which of their credit cards you’ll be approved for, it results in a soft hit, which doesn’t impact your credit score.

When you apply for a credit card or a loan, however, the lender checks your report, and that’s a sign to the credit bureaus that you’re seeking credit. This kind of inquiry is considered a hard hit, which could result in a temporary dip in your score. A cluster of hard hits can indicate a deeper financial problem.

If you’re seeking a new credit card or other forms of credit, research the product thoroughly before you apply. If you’re looking for a new credit card, using Quick Check from Capital One will tell you with 100% certainty which Capital One cards you’d be approved for—with no commitment to apply and no impact to your credit score.

4. Be aware of your credit utilization ratio

Carrying too much debt can be tough on your mental wellbeing, and a high debt-to-credit ratio may also negatively impact your credit score. But how much debt is too much? The answer lies in your credit utilization ratio, which is simply the amount of your debt compared to the amount of credit you have. The lower your debt-to-credit ratio, the better, but anything up to 30% (for example, $3,000 debt for every $10,000 in credit) is considered acceptable by most credit bureaus and lenders.

5. Use different types of credit

You can make a positive impression with the credit bureaus by carrying and successfully managing multiple kinds of credit. In addition to credit cards, these might include car or personal loans, lines of credit, a mortgage or a student loan. Again, it’s best to make payments in full and on time.

6. Maintain old accounts

It’s tempting to close those dormant credit card accounts from your college years, but you might want to leave them alone. The length of your credit history is one determinant of your score, so hanging on to an old account can actually be a benefit. 

7. Consolidate your debt

If you owe a significant amount, particularly across products, a debt consolidation strategy may help improve your score—and your sanity.

Debt consolidation means moving your debt from different lenders into a single, lower-interest product. For example, low-interest credit cards and cards with balance transfer promotions can help you pay less in fees while you pay off your balance. A debt consolidation program or credit counselling can also help you take control of your finances.

Having to consolidate debt can feel like a heavy decision and, for some, a last resort. But having a single payment structure can provide clarity, and watching that number go down can feel good, too. “Financial wellbeing means an overall calmness about one’s financial situation,” says Carey. “When anyone has less stress in their life, this can transcend into all areas.”

A good credit score is important to financial wellbeing, but getting there needn’t be overwhelming. “Start small,” advises Carey. “Create tangible goals that can build over time, and then use that momentum.”

For more ideas about financial wellness, visit the Capital One Life & Credit blog.

About Keph Senett

Keph Senett writes about personal finance through a community-building lens. She seeks to make clear and actionable knowledge available to everyone.