Your credit score is one of the most important factors when applying for an auto loan, mortgage, or any type of credit. A good credit score can unlock better interest rates, more favorable loan terms, and greater financial opportunities. But what if your credit score isn’t where you want it to be? Don’t worry—improving your credit score is possible, and with a few strategic steps, you can see significant progress over time.
In this guide, we’ll walk you through:
- Understanding how your credit score is calculated
- Why improving your credit score matters
- Actionable steps to improve your credit score
- Tips for maintaining a good credit score long-term
Let’s get started on the road to better financial health!
1. Understanding How Your Credit Score Is Calculated
Your credit score is a three-digit number that reflects your creditworthiness. In Canada, credit scores range from 300 to 900, with scores of 700 and above generally considered “good.” There are several factors that influence your credit score, and understanding them is key to improving it.
Here are the five main factors:
- Payment History (35%): Whether or not you pay your bills on time. Missed or late payments negatively affect your score.
- Credit Utilization (30%): The amount of credit you're using compared to your credit limit. Keeping your credit utilization below 30% is ideal.
- Credit History (15%): The length of time you’ve had credit. A longer history generally improves your score.
- New Credit Inquiries (10%): Frequent applications for new credit can negatively impact your score.
- Credit Mix (10%): Having a diverse range of credit products (credit cards, loans, etc.) can positively affect your score.
Internal Link Opportunity: Learn how auto financing options work and why your credit score matters when securing a loan with Cardohh.
Here are the five main factors:
2. Why Improving Your Credit Score Matters
Having a strong credit score doesn’t just make it easier to qualify for loans—it also saves you money in the long run. Here’s why:
- Lower Interest Rates: With a higher credit score, lenders see you as less of a risk, which means they’re more likely to offer you lower interest rates on loans. This could save you thousands of dollars over the life of a loan.
- Better Loan Terms: Not only can a good credit score get you lower interest rates, but it can also unlock better loan terms, such as longer repayment periods or lower monthly payments.
- More Financial Flexibility: A higher score can help you qualify for better credit cards, higher credit limits, and other financial products.
3. Actionable Steps to Improve Your Credit Score
a. Pay Your Bills on Time
Your payment history is the most significant factor in your credit score. Consistently paying your bills on time is the best thing you can do to improve your score. Set up automatic payments or reminders to ensure you never miss a due date.
- Tip: Even if you can only make the minimum payment on a credit card, do so to avoid late payments.
b. Lower Your Credit Utilization
Try to keep your credit utilization (the amount of available credit you’re using) below 30%. If you have a $5,000 limit, aim to keep your balance under $1,500. Paying down existing debt can help lower your utilization ratio.
- Tip: If possible, pay off your credit card balances in full each month to keep utilization low.
c. Avoid Applying for Too Much Credit at Once
Each time you apply for a new credit card or loan, it results in a “hard inquiry” on your credit report, which can temporarily lower your score. Try to space out your credit applications.
- Tip: If you're shopping for a loan (like an auto loan), multiple inquiries within a short period (usually 14-45 days) are often grouped together as one, so you don’t get penalized for rate shopping.
d. Diversify Your Credit Mix
Lenders like to see that you can manage different types of credit responsibly. If you only have credit cards, consider adding a personal loan, car loan, or line of credit. But be cautious—only take on new credit if you really need it.
- Tip: Don’t open accounts just to diversify your credit mix, as this could backfire if you're unable to manage additional payments.
e. Check Your Credit Report for Errors
Errors on your credit report could be dragging your score down without you even knowing it. It’s a good idea to review your credit report annually to ensure everything is accurate.
- Tip: ou can get a free copy of your credit report from Equifax Canada or TransUnion Canada. Dispute any errors you find with the credit bureau.
4. Long-Term Tips for Maintaining a Good Credit Score
Improving your credit score is just the first step—maintaining it requires long-term financial discipline. Here are some tips to ensure your credit stays in great shape over time:
a. Maintain Low Balances
Even after improving your credit score, keeping your credit utilization ratio low is essential. Try to avoid maxing out your credit cards or taking on more debt than you can manage.
b. Keep Older Accounts Open
The length of your credit history plays a role in your credit score, so avoid closing old credit accounts, even if you don’t use them often. Keeping these accounts open helps improve the average age of your credit.
c. Continue Making Timely Payments
Once you’ve established a history of on-time payments, don’t break the streak. Continue to make all your payments on time, as even one missed payment can cause a significant drop in your score.
d. Be Careful with New Credit
While it’s tempting to apply for new credit to take advantage of rewards or promotions, only apply for credit when necessary. Too many new credit inquiries in a short period can negatively affect your score.
- Tip: For more tips on managing your credit and debt, check out the Financial Consumer Agency of Canada.
5. How Cardohh Can Help You Improve Your Credit
At Cardohh, we understand that improving your credit score takes time, but we’re here to help. Our custom auto financing solutions are designed to meet your needs, even if your credit isn’t perfect. Whether you’re looking to finance a car with a bad credit score or need guidance on how to raise your credit for better loan terms, Cardohh is your trusted partner.
Apply with Cardohh today to get pre-approved for a car loan, and start your journey toward financial freedom and credit improvement!
Conclusion
Improving your credit score is achievable with the right steps and financial discipline. By paying your bills on time, keeping your credit utilization low, and avoiding unnecessary credit applications, you can see a steady improvement in your score over time. Remember, your credit score is a key factor in securing favorable loan terms, including auto loans, so the effort you put into improving it will pay off in the long run.
Cardohh is here to support you every step of the way, offering custom financing solutions tailored to your situation. Ready to take control of your financial future? Apply with Cardohh today and start driving your dream car while working toward better credit.
