#1 Payment History

 

35% of your score is based on your payment history.  This includes credit cards, lines of credit, loans, car payments, cellphone carriers, utility bills, even unpaid parking tickets.  A missed payment or a collection on your credit bureau can significantly lower your score.

 

#2 Utilization Ratio

 

30% of your score is how much of your credit limit on credit cards and lines of credit is being used each month.  Keeping your usage below 30% is the best as it shows you are using your credit responsibly which increases your score.  Don’t go over 70% usage as it looks like you could be in financial difficulties which decreases your score.  If you are able to pay off your credit each month, the timing of when you make the payment makes a difference! Paying your card by the due date is critical but if you pay your card at a different time (maybe on pay day) and that day happens to be just before your lender reports to the credit bureau, it looks like you are not using your credit which will decrease your score. 

 

#3 Length of Credit

 

15% of your score is based on your credit history.  A minimum of two years history on each credit account; the longer the better. If you are switching credit card companies, do not cancel your old accounts until you establish history with new accounts.

 

#4 Types of Credit

 

10% of your score is based on the mix of credit you may have.  Having different types of credit is good for your score; for example, a “bank” credit card, a department store credit card, a line of credit, and a personal loan (for example a car loan).  A minimum of two active credit accounts is favourable, but don’t have too many as that will decrease your score.  Note the total amount of available credit is also a factor, so if you have a credit card with a high credit limit, keep the credit limit on a second card or line of credit low. 

 

If you are new to Canada, are young, or have gone through a bankruptcy/consumer proposal, getting a secured credit card is one of the easiest ways of building your credit.  A secured card is backed with cash which you deposit, for example $500. The $500 becomes your credit limit.  By using the credit each month and paying the balance off, bringing your credit limit back up to or close to the $500, you are creating a history of credit utilization and regular payments.  After 6 months to a year, you should be able to apply for a non-secured credit card. 

 

#5 Inquiries

 

10% of your score is based on inquiries.  Everyone time you are looking for credit (even for a new cell phone plan or some car insurance agencies), your credit report will be checked.  This is called a hard check.  The fewer hard checks the better because a lot of inquiries make lenders nervous that you might be living beyond your means.