Here are some actionable credit tips to help you optimize your score and set yourself up for financial success, including ensuring you get the best mortgage rate.
Manage your credit utilization
To really improve your credit score, paying your statement balance in full every month isn’t enough. Instead, aim for at least three business days to pay the balance in full forward Your card provider will issue a statement.
Here’s why: Credit card issuers report your statement date balance to Equifax and TransUnion, Canada’s major credit reporting agencies. The agencies’ algorithms take into account your utilization ratio, which is your balance as a percentage of your credit limit.
For example:
- If your credit card limit is $2,000 and you’ve used $1,500, your utilization rate is 75%. Even if you pay off the $1,500 during the grace period to avoid interest, your high utilization rate will have a negative impact on your credit score — not catastrophically, but certainly having an impact.
- However, if you pay off the $1,500 forward After your claim goes out, your utilization drops to near zero, which has a significant benefit to your score.
Low utilization is one of the fastest ways to improve your personal credit score. The smaller the credit card limit, the greater the impact on your billing date strategy.
Accept all offers to increase your credit limit
When your credit card provider offers to increase your credit limit, you should generally say yes. Why? A higher credit limit not only strengthens your overall credit profile, it also immediately lowers your utilization ratio, which is the ratio of your credit balance to your credit limit.
Here’s why this is important:
- Improve credit status: Higher limits can make a lender appear more financially capable.
- Low usage: If your balance stays the same and your limit increases, your utilization ratio decreases, which can improve your credit score. For example, if you owe $1,000 on a card with a $5,000 limit, your utilization rate is 20%. If your limit is increased to $10,000, your utilization drops to 10%.
Equifax Canada emphasizes that utilization accounts for 30% of your credit score. As long as you manage your spending responsibly, accepting a higher limit is a simple and effective way to improve your credit profile.
If in doubt, don’t close your credit card.
Closing an old, unused credit card is rarely the right move. These cards contribute valuable “score juice” to your credit profile because they help improve credit age and utilization — two important factors in calculating your credit score.
If you’re considering closing your card because of the annual fee, there are better solutions:
- Downgrade instead of shutting down: Contact your card issuer and request a downgrade to a no-fee card. This way, you can keep your account’s history and avoid annual fees without the risk of forgetting to pay.
By keeping your account open in this way, you can continue to benefit from the card’s positive impact on your credit score while eliminating unnecessary costs.
Pay for controversial items and then argue your position
Disputing charges on your credit card can be frustrating, especially when you’re convinced the charges are invalid. However, refusing to pay while you wait for the investigation process to conclude may result in interest charges and late payment marks on your credit report, which can harm your credit score.
Here’s a smarter way:
- Pay disputed charges: Settle your balance in full, including disputed amounts, to avoid late fees and protect your credit score.
- Let the investigation proceed smoothly: In my experience, credit card issuers generally resolve legal disputes fairly and issue credit to your account when fraud or billing errors are discovered.
Exceptions for serious credit card fraud
If the fraudulent charges are substantial or involve potential identity theft, a different strategy is required. In this case, please consult the authorities and your card issuer to determine the best course of action. They may recommend freezing your account or taking legal action while ensuring your credit score is not negatively affected.
By paying first and disputing later, you protect your credit standing while allowing investigations to proceed. This is a proactive way to ensure that disputes are resolved without lasting financial consequences.
Which credit report is the most important?
There is no shortage of online credit reporting services in Canada, from Equifax Canada and TransUnion Canada to secondary providers like Borrowell and Credit Karma. Some banks also provide basic credit reports upon request.
However, based on years of experience reviewing thousands of credit reports, I recommend giving Equifax Canada and TransUnion Canada priority. These two organizations provide the most accurate and comprehensive information.
That said, a personal credit report you obtain on your own will never be as detailed or meaningful as what a lender will see during a formal “hard investigation.” Here’s an article explaining why these sources of credit information produce different results.
If you want to track your credit, Equifax Canada offers free monthly reports with scores. For more frequent updates, you can subscribe to a monthly credit monitoring service from Equifax or TransUnion. These services can be helpful if you are monitoring specific changes (such as updates following a survey request).
When should you request an investigation?
If you find an obvious error on your credit report, you can ask the credit reporting agency to make a correction. Here are some examples of common mistakes:
- Personal information: Incorrect name spelling, date of birth, or SIN.
- Incorrect trade routes: An account you don’t recognize, possibly due to fraud or mistaken identity.
- Debts that have been paid off are shown as unpaid: This situation often occurs in collections or accounts involved in consumer proposals or bankruptcies.
- Balance of closed account: Accounts that have been closed and settled but still show a balance due.
Here’s how to request an investigation from Equifax Canada and TransUnion Canada. Please do not expect any other score reporting agency to provide this service.
While it’s important to correct mistakes, don’t worry about inconsequential details like old employer information. Recently, I advised someone not to dwell on outdated employment records. These items are harmless and generally do not affect your creditworthiness.
How to access your free credit report
To get your free Equifax credit report, follow these resources from personal credit expert Richard Moxley:
If you encounter an error that you can’t resolve on your own, consider contacting a credit professional like Richard for assistance.
bottom line
When I started delving into personal credit more than two decades ago, it was a niche subject that few Canadians understood. Today, credit scores and reports are common knowledge, but understanding the nuances can still be challenging.
If your credit is preventing you from getting a mortgage or achieving your financial goals, talk to a knowledgeable mortgage professional. With the right guidance, you can optimize your credit score and ensure you get the best results for your situation.
Wishing you healthier credit and more financial success in the new year!
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Last modified: January 3, 2025
