Whenever you open a new credit card, apply for a loan, get a brand new cellphone, or even rent a new place…

These companies report back to one or both of the two credit bureaus in Canada: Equifax and TransUnion.

What do they report?

  • how much money you borrowed,
  • your payment history,
  • any outstanding balances, missed payments, delinquent payments, or
  • any accounts that you closed.

This financial folder, with your name on it, paints a picture of how safe – or risky – you are as a client.

These companies will also pay Equifax and TransUnion to access your credit history to assess if you’re a safe bet…

Or if you’re a risk – just how much of a risk?

To make your creditworthiness assessment more objective, they assign you a score:

Your credit score.

A 3-digit number ranging between 300 to 900 calculated by Equifax and TransUnion. Both have their own proprietary algorithm for calculating your credit score…

So your two scores may not exactly match.

Not to mention companies who report, may report haphazardly to just one credit bureau. The other is missing out…resulting in divergent credit scores assigned to the same person.

Not a perfect system. But it’s one we need to work with.

So, let’s dive in.

Related: Late Credit Card Payment? Never Again With These 5 Tips

What a good credit score can get you

Why should you care about your credit score in the first place?

There’s a few reasons why you want a good credit score:

  • You have a better chance of approval when you apply for credit, like: a mortgage, car loan, line of credit, credit card, etc.
  • You’re offered the most competitive (low) interest rates because companies are betting you’ll be paying your balance on time and as scheduled.
  • You can qualify for higher credit limits or bigger loans than you otherwise might.

…and the negative outcomes for bad credit?

  • Rejection of your credit application.
  • Possible refusals by landlords, cell phone providers, and maybe even potential employers (who may check your credit score as part of their hiring process).
  • Costly interest rates as a buffer for the company who is taking increased risk.

Your credit score is not included in your credit report, which you can get for free. Equifax and Transunion both charge to reveal your credit score, but there are a few third party companies that partner with the credit bureaus to give it to you for free.

And yes, getting your report is a good step. But it doesn’t stop there.

Do your due diligence by reviewing your report thoroughly. And if needed, investigate and report any potential errors – here’s how.

Rate Your Wallet and find your perfect match.

Credit score range

The good news about scores?

It removes the potential bias that is inherent in any subjective assessment.

In other words, no one should be able to refuse your credit application on a whim.

Also, scores can trigger the desire to level up. (Gamer or not.)

Here’s the breakdown:

  • 760+ – excellent
  • 725 to 759 – very good
  • 660 to 724 – good
  • 560 to 659 – fair
  • 300 to 559 – poor

So knowing your credit score is one thing, but…

How do you level up?

5 ways to fix (or improve) your credit score

If you don’t know what your credit score is yet, it’s time to find out.

If your score is 700+, congratulations! As long as you keep these 5 factors in mind and stay responsible with your credit – your score should stay within the good range.

But if your score is lower than you’d like? Here are 5 areas you can improve on:

1. Clean up your payment history

This accounts for 35% of your score.

And here’s what’s included in your history:

  • Bankruptcy
  • Delinquencies
  • Foreclosures, etc

Damaging information remains on your file for between 6 to 10 years, depending on what it is and what province you live in. 6 years is the most common though. Full details here.

Want to nail this factor? Never ever miss your payments. Ever.

Sure, a missed payment every few years is clearly a glitch of memory…

But two or more successive missed payments every other month is a clear sign of trouble.

Related: 11 Steps To Kill Credit Card Debt…Fast

2. Lower your credit utilization (or debt service) ratio

This accounts for 30% of your score.

Two things the bureaus look at:

  • actual total $ amount you owe, over
  • total credit available to you from all your accounts where you carry a balance.

Simple examples where the third scenario is ideal:

Accounts Amount you owe Max credit available Credit Utilization Ratio %
A $500 $1,000 50%
B $1,000 $3,000 33%
C $500 $3,000 17%

Nail this factor by keeping your credit utilization ratio between 10% and 30% to be safe.

And most of all? Never max your limits.

Tip: One way to keep your ratio low is by paying your balances several times a month. Another strategy is to increase your available credit to a reasonable limit.

3. Consider your length of credit history

This accounts for 15% of your score.

How long have you had each of your credit accounts? This is what the credit bureaus want to know.

Credit takes time to build. So start early – before you have a need for it.

If you’re just starting out, young, or a newcomer to Canada, consider getting:

  • A low-cost cellphone plan, and pay it punctually over a period of years.
  • A low-limit no fee credit card – and pay it in full and on time every single month.

It helps when you have old and active accounts in your credit history because the bureaus compute the average age of your accounts. And a higher number shows that you’ve got proven established credit.

For this reason keeping a no fee credit card for the long-term is a good strategy.

4. Check your mix of credit

This accounts for 10% of your score.

Responsible usage of multiple types of credit gives your credit score some props. For example:

  • Credit cards – if you’re just starting out, no fee secured credit cards are probably best.
  • Personal lines of credit – these are pre-approved loans up to maximum amount, which you don’t need to use right away. You pay back plus interest charges when you start to use it. The most common form of this type is the overdraft protection you may already have with your chequing account.
  • Loans – could be student, car, or mortgage.
  • Utility services – like electricity, internet, cell phones, etc.

5. Keep track of the frequency of your credit applications

This accounts for 10% of your score.

Have you applied for new credit or opened a new account recently?

Your score gets dinged when a company checks your credit score, also known as a hard inquiry. Keep these tips in mind:

Plan ahead and do a comparison.

The credit bureaus know that shopping around and comparing rates before committing for a specific loan is common practice. So, your score shouldn’t get dinged too much if you do a cluster of credit inquiries when you’re doing your comparison.

Space out any credit application to only a few per year.

While rate comparison allows for cluster credit inquiries without heavy impact on your score…Actually applying for credit is a different story.

Related: 12 Credit Card Mistakes You Can’t Afford To Make

Credit cards that will help improve your credit score

If you’re struggling with poor credit, getting an easy-approval credit card for your situation is ideal.

Here’s a look at a few of my favorites.

National Bank MC1 Mastercard – for beginners

A good credit card to consider if you’ve never had one before is the . This basic, no-fee credit card is ideal for first-timers.

It will allow you to build your credit history, allowing you to eventually be able to apply for some of those juicier credit cards with outstanding rewards and perks.

Home Trust Secured Visa – for bad credit

If you’re struggling with poor credit, consider a secured credit card like the . Your credit limit will be the same as your security deposit, allowing to build your credit back up.

Credit cards to consider once your score has improved

If you already have great credit, or your score has improved, here are a few cards you could consider applying for to help celebrate your new good habits.

American Express Cobalt

A great choice is the – our number one ranked credit card in Canada (as well as in 5 other categories).

Earn 5 points per $1 spent on your groceries and dining purchases, 2 points on travel, transit and gas, and 1 point on all other purchases.

And, you can earn a welcome bonus of 2,500 points for every month you spend $500 in the first year – a total of up to 30,000 points.

All for an annual fee of $120 that gets charged out as an easy $10 per month.

BMO AIR MILES World Elite Mastercard

If you’re an AIR MILES collector, the is the best AIR MILES card you can get.

Earn 1 Air Mile for every $10 spent on the card – the best AIR MILES earn rate available. And get a welcome bonus of up to 3,000 AIR MILES as part of signing up.

Plus, you’ll get a 15% discount on miles needed to redeem for a rewards flights within North America, helping you make the most out of the miles you already collect.

TD Aeroplan Visa Infinite

Is Aeroplan more your game? Then the is an excellent Aeroplan choice.

Earn 1.5 miles per $1 spent on gas, groceries, drugstores, and aircanada.com purchases, as well as 1 mile per $1 on everything else.

And it currently comes with a monster sign up bonus of 30,000 Aeroplan miles.

But, what really makes it a great Aeroplan card are the Air Canada benefits. Fly on an Aeroplan rewards ticket on Air Canada and you’ll get your first checked bag free, priority check-in, and priority boarding – great benefits to make your rewards ticket even better.

American Express Marriott Bonvoy

Prefer to stay at a hotel for free? The is the card for you.

Earn 2 points for every $1 you spend, and 5 points per $1 at Marriott properties.

But the Marriott benefits are what make this card stand out. Get an annual free night on your cards anniversary with a value of up to 35,000 points. This alone covers the annual fee of $120.

You’ll also get Marriott Bonvoy Silver Elite status and 15 free elite night credits every year.

Prepaid cards

While they won’t improve your credit score, prepaid cards will give you the convenience of a credit card, in case you aren’t able to get approved for one.

You can use a prepaid card until enough time passes that your credit score starts to improve, and you can apply for a regular credit card.

Here is a good prepaid option to consider.

KOHO Prepaid Visa

For a prepaid Visa, the is a great option.

Instead of bonus rewards at select stores, you earn 0.5% cash back on every purchase.

It has no annual fee, but does charge a 1.5% foreign currency exchange fee, which is still better than most credit cards which charge 2.5%.

For even more rewards, you can upgrade your account to .

For an annual fee of $84 (or $9 per month), you’ll get improved rewards, as well as some other perks.

Get 2% back on a variety of categories, including:

  • Groceries,
  • Gas,
  • Restaurants, and
  • Transit.

You’ll still get 0.5% back on everything else.

It also comes with price protection. Charge your purchases to your card. If you see the price cheaper somewhere else 30 days after your purchase, send the receipt to KOHO and get a refund on the difference.

To make it even sweeter, it charges no foreign exchange fees as well, saving you money on purchases made in a different currency.

If you decide it’s not worth it, you can always switch back to regular KOHO at any time.

The bottom line?

Credit scores used to be a big mystery…that’s no longer the case by and large.

A switch in recent years took place so that anyone who can Google can get access to a free credit report. Every month!

The problem? The 3-digit numbers you think you can call your score is only one of your scores…

In reality, you have multiple scores. And your score can vary depending on the lender’s industry, like: mortgage, auto loan, credit card, and utility services.

That’s right, Equifax and Transunion don’t just have one algorithm for computing your score, they have many. And they’ll apply whichever one deemed most relevant at the time, which might leave you completely mystified when it doesn’t match the one they gave you.

While yes, it’s helpful to know your score…there’s no need to obsess about it.

If you keep these two things mind, chances are good that you’re doing just fine:

  • Pay your bills and balances on time and in full. Every. Single. Month.
  • Keep track of your timing when applying for credit.