Your credit score can be an enormous deciding factor when it comes to qualifying for certain financial services and interest rates. However, for many Canadians, building a good credit score can seem unattainable. We’re here to say otherwise.
You might think you need to spend a lot of time and effort on your credit-building strategy. And although having a low credit score could impact your ability to buy a home, get an auto loan, or qualify for a line of credit, it’s not something you can’t change.
Knowing how to improve your credit score is a great skill to have, especially when you have financial goals that require a good credit score, like getting approved for a business loan or a mortgage in the future.
So, let’s take a look at some of the things that can lower your credit score, how to repair bad credit, and how long it takes to rebuild credit. (Spoiler alert: It can take a while.)
How Easy Is It to Lower Your Credit Score?
There are a lot of factors that credit bureaus look at when calculating your credit score.
A credit bureau compiles data on consumer creditworthiness from different sources, including banks, credit card companies, credit unions, and collection agencies. Then they pass that information to lending organizations, such as banks, when a request for credit has been made by the consumer. The lender will look at the consumer’s credit score (as well as their credit history) which represents just how “creditworthy” the consumer is.
Anyone with a low credit score might feel pressured to learn how to improve their credit score fast. A higher credit score often means the difference between getting a loan and being disapproved—or even getting better terms on the loan that can make it more affordable, such as a lower interest rate.
But, how easy is it to lower your credit score? It can be as simple as:
- Failing to Pay Bills on Time. If you frequently miss bill payment dates or eventually get your account sent to collections, that information will appear in your credit history—dragging down your credit score. This is one of the major factors credit bureaus look at to assess creditworthiness.
- Running Too Close to Your Credit Limit. If you have a high utilization rate, it could impact your credit score. Utilization rate is the ratio of how much credit you have available compared to how much you’ve used. So, if you had $10,000 of available credit, and used $3,000 of it, your utilization rate would be 30%—which is considered good.
- Not Using Any Credit. If you haven’t been borrowing for long, that could impact your credit score all on its own simply because you’re so new to the credit world, there’s not much information available to determine your creditworthiness. The only real fix for this is time. The longer you spend building a good credit history—which can include having a credit card or cell phone bill in your name that you pay every single month on time—the better.
- Having Many Hard Inquiries. To somewhat oversimplify it, a hard inquiry is what happens when you apply for a loan or a new credit card and the lender reaches out to the credit bureaus to check your credit report. Having many hard inquiries over a short period of time could lower your credit score.
Can You Fix Your Credit Score?
“Fixing” your credit score might not be the most accurate term. It’s more like “rebuilding” your credit and improving your credit score over time.
Technically, you can’t “fix” your credit information; once it’s there, it’s there for a while. If the information in your credit report is accurate, you cannot change or remove it from your credit report.
If the information on your credit report is inaccurate—for example, say there’s a loan on your credit report that has been paid in full but is appearing as though it’s in arrears—you can petition to have the error removed.
However, if you really did miss payments and it got reported to the credit bureaus, then no service can remove that information from your credit history for you.
So, can you fix your credit?
Technically, no. But you can rebuild your credit by creating a positive credit history.
Many people who have not-so-great credit scores (anything above 660 is considered “good” by most lenders) might research how to fix a bad credit score, only to get hit with a credit repair scam. These organizations often offer the impossible—saying they know how to fix bad credit instantly and remove negative information from your credit report—which can't be done.
If you’ve ever heard the saying, “Nothing worth having comes easy,” the same can be said for building good credit. It can take some time to build, but once you have good credit, it’s definitely worth maintaining.
How Long Does It Take to Rebuild Credit Following a Drop?
If you’re wondering how long it takes to rebuild your credit, you’re not alone. The amount of time it takes to rebuild your credit and increase your credit score depends on your credit profile, which can be very specific to each consumer.
Also, certain activities can lower your credit score more than others. For example, missing a payment or being late on a single payment won’t affect your credit score as much as your account being sent to collections for multiple missed payments.
Filing for bankruptcy or a consumer proposal will also lower your credit score temporarily, but you can still rebuild it. It might take a few years to build up your credit slowly after an insolvency, but with consistent on-time payments, you can start to see some improvement.
How long does a bankruptcy take to no longer appear on your credit report? In most provinces, a bankruptcy no longer appears on your report after 6 years following the date of discharge. In New Brunswick, Ontario, Newfoundland, PEI, and Quebec, a bankruptcy will stay on a consumer's TransUnion credit report for 7 years after the date of discharge.
If you declare bankruptcy more than once, the bankruptcies will stay on your report for 14 years.
While you can engage in credit-building activities to help restore your credit, negative activity can weigh down your credit score until it finally no longer appears in your report.
The good news is that enough positive information can outweigh the impact of negative information in your report. So, even if you can’t get to a “great” credit score right away, you can start rebuilding your credit immediately by creating positive credit information in your report, which will eventually lead to a good credit score with some time and effort.
How to Improve Your Credit in Canada
Wondering how to improve your credit score? There are a few different things you can do to rebuild your credit after you see a drop, including:
Check Your Credit Report for Errors.
Sometimes, information gets added to your credit report that doesn’t belong there. This can be the result of errors, such as someone incorrectly reporting a missed payment when you paid on time, or someone using your information to apply for financial services (also known as fraud).
Checking your credit report for these anomalies and getting them addressed by the appropriate parties (the lender and the credit bureaus) can be a quick win in repairing a damaged credit score. But remember: You can’t remove accurate information.
Build a Positive Credit History with a Secured Credit Card.
If you’re having a hard time getting a loan or a new credit card because of a poor credit score, you may want to consider getting a secured credit card. These cards work a lot like other credit cards—with the exception that they’re backed by a deposit (which may also determine the credit card’s spending limit).
By using the card and making timely payments, you can steadily build your credit history and fill it with positive activity.
Focus on Maintaining at Least Your Minimum Monthly Payments.
Making consistent on-time payments is one of the best things you can do to both protect and boost your credit score. If you notice you’re having difficulty making your monthly minimums on time, try to avoid adding to your debt.
Stop using the credit card, or whatever form of credit you’re using, and focus on paying down your balances. This way, you’ll also have more credit available to you (decreasing your credit utilization rate), which helps your score, too. If you find yourself with any extra cash, consider putting it towards your debts so you can clear them faster.
Consult an Accredited Credit Counsellor.
Reaching out to a not-for-profit credit counselling agency in Canada can be a great help when you need to rebuild your credit and/or get out of debt.
A certified credit counsellor can help you rebuild your credit by providing information and advice tailored to your specific situation—and their counselling services are completely free. They can even review your credit report and advise you on how to best address your debts and increase your credit score.
Get Non-Profit Help to Rebuild Your Credit
While there is no “magic wand” that will fix credit problems instantly, there are ways to start building a positive credit history today! It might take some time to see all that good work reflected in your credit score, but when you do see the results and are able to qualify for that car loan, line of credit, or mortgage, you’ll know it was worth the effort!
Need help and advice on building your credit, improving your credit score, or getting out of debt? Reach out to Credit Canada today to get support!