New Chapter 4: Understanding Credit
Improving your credit score doesn’t happen overnight — it can take months or even years — but steady, consistent habits can move it in the right direction.
If your score is already high, great — keep doing what you’re doing. If your score is fair or poor, don’t worry. There are many proven ways to improve it, and you can start today.
When Siobhan was paying off her student loans, her score was around 490. By using the steps below, paying down her debt, and managing her credit responsibly, she raised it to about 840, where it’s stayed for the past two years. Here’s how you can start building your own improvement plan.
1. Pay Your Bills on Time
Your payment history is the most important factor in your credit score. Late payments — even by a few days — can hurt your score. Make sure you pay all bills on time, including credit cards, loans, utilities, and other recurring accounts. Whenever possible, pay your credit cards in full each month to avoid interest and keep your score healthy.
2. Keep Credit Card Balances Low
Your credit utilization ratio (how much of your available credit you use) makes up a big part of your score. Aim to keep it below 30% — ideally lower. Even if you pay your balance off each month, regularly using a high percentage of your available credit can hurt your score. Pro tip: Instead of letting your balance grow all month, make smaller payments throughout your billing cycle to keep your reported balance low.
3. Consider Increasing Your Credit Limit
A higher credit limit can instantly lower your utilization ratio if your spending stays the same. For example, if you regularly use $4,000 of a $10,000 limit (40%), raising it to $15,000 drops your utilization to 27%. If you don’t trust yourself with a higher limit, focus on other methods instead. Similarly, think twice before closing unused credit cards — keeping them open (if they’re free) can help keep your limit higher.
4. Pay Off Debt
The less you owe, the better your score will be. Focus on high-interest debt first, then work on paying down the rest. This will reduce your overall debt load and improve your credit profile.
5. Limit New Credit Applications
Every time you apply for new credit, it triggers a hard inquiry, which can temporarily lower your score. Applying for several new accounts in a short period can have a bigger negative impact. Only apply when you’re confident you meet the eligibility requirements.
6. Check Your Credit Report for Errors
Mistakes happen — and they can cost you. Check your report regularly to make sure all the information is correct. You’re entitled to a free report from each major credit bureau once a year:
Canada: Equifax, TransUnion
US: Equifax, Experian, TransUnion
UK: Equifax, Experian, TransUnion
You can also use third-party services like Borrowell, Credit Karma, or ClearScore for ongoing free access and alerts.
7. Maintain a Mix of Credit Types
Lenders like to see that you can handle different types of credit responsibly. This could include a mix of revolving credit (like credit cards), installment loans (like a car loan), and a mortgage.
8. Be Patient and Consistent
A strong credit score is built over time. Stick with good financial habits — budgeting, saving, paying on time — and your score will improve gradually.
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