According to the Financial Consumer Agency of Canada, almost half of Canadians have never requested a credit report. Should you care about your credit score?

The answer is a resounding yes. A credit score numerically represents your credit report and shows potential lenders how reliable you’ve been about paying back loans and managing debt. The higher your number, the more likely a creditor is to lend you money and give you more favourable financing. Potential landlords and employers (with permission) may also be interested in your credit report.

How is the score calculated?

Canada’s major credit bureaus, Equifax and TransUnion, each use their own modelling method to arrive at a score, so you may want to order a credit report from each one to get a clear snapshot of your credit record. According to the Financial Consumer Agency of Canada, factors that may affect your credit score include:

• how long you've had credit
• if you carry a balance on your credit cards
• if you regularly miss payments
• the amount of your outstanding debts
• being close to your credit limit
• the number of times you try to get more credit
• the types of credit you're using
• if your debts have been sent to a collection agency
• any record of insolvency or bankruptcy

How do I raise my score?

Your payment history has a big impact on your score. The single biggest way to improve your rating is to pay your accounts on time. Setting up automatic payments for your bills is an easy way to avoid any late payments. 

Using available credit wisely is also important—aim for using less than 30% of your credit limit. According to the Financial Consumer Agency of Canada, it’s better to have a higher credit limit and use less of it each month.

For example, imagine you have a credit card with a $5,000 limit. Let’s say on average, you put about $1,000 on your card. Your credit usage rate would be 20%.

Keep in mind that if you use a lot of your available credit, lenders see you as a greater risk, even if you pay your balance in full by the due date.

Other ways to build your score are to avoid opening too many credit lines in a short time period and to handle a mixture of credit types responsibly.

The bottom line is that with some planning you can improve a low credit score. Once a year or at least six months before a major purchase, order your credit report. If the report shows you have been experiencing difficulty with your payments or managing your debts, talk to an expert to create a plan to improve your financial health.