5 Ways to Fix Your Credit Score in Canada So You Can Buy a House

A good credit score is essential when buying a home in Canada.

Lenders use your credit score to assess the risk of lending you money, and a bad credit score can result in higher interest rates, rejected mortgage applications, or even the inability to get a mortgage at all. If your credit score is less than stellar, don’t despair.

There are actionable steps you can take to improve your credit score and put yourself in a better position to buy a home.

This article outlines five practical ways to fix your credit score in Canada, enabling you to qualify for a mortgage and secure the home of your dreams.

1. Check Your Credit Report for Errors

The first step in improving your credit score is understanding where you stand. In Canada, there are two major credit bureaus: Equifax and TransUnion. These organizations compile information on your credit history, including your payment behavior, outstanding debts, and credit inquiries. Each credit bureau may have slightly different information, so it’s important to check both.

You are entitled to a free credit report once a year from both Equifax and TransUnion. By reviewing these reports, you can ensure that all the information is accurate and up-to-date. Errors or outdated information could be hurting your score, and identifying these discrepancies is key to improving it. Common mistakes that could affect your score include:

• Accounts listed as unpaid when they’ve been settled: If you’ve paid off a debt but it’s still reported as unpaid, this could negatively impact your credit.

• Incorrect personal information: Sometimes, credit reports may list incorrect personal details, such as an old address or a misspelled name.

• Fraudulent activity: If someone has opened a credit account in your name, this could severely damage your score.

If you find any errors, dispute them with the credit bureau. They are required by law to investigate and correct any inaccuracies within a specific time frame. Removing errors from your report can boost your credit score relatively quickly, especially if you’ve been a victim of fraud.

2. Pay Your Bills on Time

One of the most significant factors that affect your credit score is your payment history. According to the FICO scoring model, 35% of your credit score is determined by how reliably you make payments. If you’ve missed payments in the past, this could be lowering your score, and it can take years for those marks to fall off your report.

Paying your bills on time is essential for improving your score. Here are a few strategies to help you stay on top of your payments:

• Set up automatic payments: Automating your bill payments ensures they are never late. This is especially useful for recurring bills like utilities, loans, or credit card payments.

• Use reminders: Set reminders on your phone or calendar for when payments are due, so you don’t forget.

• Pay at least the minimum: If you can’t pay the full balance, make sure to at least pay the minimum payment to avoid late fees and negative marks on your credit report.

Consistency in making on-time payments will gradually improve your payment history and, in turn, your credit score. It may take several months for the improvements to show up on your credit report, but patience and diligence will pay off in the long run.

3. Pay Down High-Interest Debt

If you have multiple outstanding debts, particularly credit cards with high interest rates, your credit utilization rate could be hurting your score. Credit utilization refers to the percentage of available credit you are using, and ideally, it should be below 30%. If your balances are too high, you could be considered a high-risk borrower, which would negatively impact your score.

To improve your credit utilization and lower your overall debt, consider the following strategies:

• Pay off high-interest debt first: If you have multiple credit cards or loans, focus on paying off those with the highest interest rates. This will save you money in the long run and reduce your overall debt burden.

• Use the debt snowball method: Start by paying off your smallest debt first while making minimum payments on larger debts. Once the smallest debt is cleared, use the extra funds to pay down the next largest debt. This method can provide a psychological boost and motivate you to continue paying off your debts.

• Consider consolidating your debt: Debt consolidation involves combining multiple debts into one loan with a lower interest rate. This can simplify your payments and potentially lower your interest payments, making it easier to pay off your debt faster.

By paying down high-interest debt and lowering your credit utilization, your credit score will gradually improve. Lenders will see you as less of a risk, and your chances of qualifying for a mortgage will increase.

4. Increase Your Credit Limit (But Don’t Spend More)

Another way to improve your credit score is by increasing your credit limit. This can lower your credit utilization rate, which is a key factor in determining your score. For example, if you have a $5,000 credit limit and a balance of $2,500, your credit utilization rate is 50%. However, if your credit limit is increased to $7,500 and your balance remains the same, your credit utilization rate drops to 33%, which can improve your score.

There are a few ways to increase your credit limit:

• Request a credit limit increase: Contact your credit card issuer and request a higher limit. They may be willing to approve this request if you have a good payment history and a stable income.

• Apply for a new credit card: If your current credit card company is unwilling to raise your limit, you can apply for a new card. This adds to your overall available credit and can lower your credit utilization.

Be cautious, though. It’s essential to not increase your spending just because your credit limit has been raised. If you continue to carry high balances or increase your debt, the increase in your limit will be meaningless. Keep your spending habits in check to ensure that your credit score improves.

5. Avoid Opening New Credit Accounts

While it may seem tempting to open new credit accounts, especially if you’re looking to increase your available credit, doing so can actually hurt your credit score in the short term. Each time you apply for a new credit card or loan, the lender performs a hard inquiry, which can temporarily lower your score by a few points.

Moreover, opening too many new accounts in a short period of time can make you appear financially unstable to lenders. This may reduce your chances of qualifying for a mortgage. To improve your score, avoid opening new credit accounts unless absolutely necessary.

Instead, focus on building a positive credit history with the accounts you already have. Keep older accounts open and active, as the length of your credit history also plays a role in determining your credit score.

Conclusion

Improving your credit score is an important step toward buying a house in Canada. By following these five strategies—checking your credit report for errors, paying your bills on time, paying down high-interest debt, increasing your credit limit responsibly, and avoiding opening new accounts—you can significantly improve your score over time. Keep in mind that rebuilding your credit takes patience, and it won’t happen overnight. However, with consistent effort, you can raise your credit score and put yourself in a better position to secure a mortgage with favorable terms.

If you’re planning to buy a house in the near future, start working on improving your credit today so that you can enjoy the benefits of a stronger financial foundation when it’s time to make that big purchase.