Here are some actionable credit tips to help you optimize your score and position yourself for financial success, including securing the best mortgage rates available.
Manage your credit utilization ratios
To truly improve your credit score, paying your statement balance in full each month isn’t enough. Instead, aim to pay your balance in full at least three business days before your card provider issues a statement.
Here’s why: credit card issuers report your statement date balance to the major Canadian credit reporting agencies—Equifax and TransUnion. These agencies’ algorithms factor in your utilization rate, which is the percentage of your credit limit that your balance represents.
For example:
- If your credit card has a $2,000 limit and you’ve used $1,500, your utilization ratio is 75%. Even if you pay off the $1,500 during the grace period to avoid interest, your high utilization ratio will negatively affect your credit score—not catastrophically so, but it does have an impact.
- However, if you pay off the $1,500 before your statement is issued, your utilization ratio drops to near zero, significantly benefiting your score.
A low utilization ratio is one of the quickest ways to elevate your personal credit score. The smaller the limits on your credit cards, the more dramatic the impact of the statement date strategy.
Accept all offers of increased credit limits
When your credit card provider offers to increase your credit limit, you should usually say yes. Why? A higher credit limit not only strengthens your overall credit profile but also instantly reduces your percentage utilization, which is the ratio of your credit balance to your credit limit.
Here’s why this matters:
- Improved credit health: A higher limit makes you look more financially capable to lenders.
- Lower utilization: If your balance remains the same while your limit increases, your utilization ratio drops, which can boost your credit score. For example, if you owe $1,000 on a card with a $5,000 limit, your utilization is 20%. If your limit increases to $10,000, your utilization falls to 10%.
Equifax Canada emphasizes that percentage utilization accounts for 30% of your credit score. Accepting higher limits, as long as you manage your spending responsibly, is a simple and effective way to enhance your credit profile.
If in doubt, do NOT close a credit card.
Closing an older, unused credit card is rarely the right move. These cards contribute valuable “score juice” to your credit profile because they help with credit age and utilization ratios—two important factors in calculating your credit score.
If you’re thinking about closing a card due to annual fees, there’s a better solution:
- Downgrade instead of closing: Contact your card issuer and request a downgrade to a no-fee card. This way, you retain the account’s history and avoid the annual fee without the risk of forgetting to pay it.
By keeping the account open in this way, you continue to benefit from the positive impact of the card on your credit score while eliminating the unnecessary cost.
Pay disputed items, then argue your position
Disputed charges on your credit card can be frustrating, especially when you’re confident the charges aren’t valid. However, refusing to pay while waiting for the investigation process to conclude can lead to interest charges and late payment marks on your credit report, which may harm your credit score.
Here’s the smarter approach:
- Pay the disputed charges: Settle the balance in full, including the disputed amount, to avoid late fees and protect your credit score.
- Let the investigation play out: In my experience, credit card issuers typically resolve legitimate disputes fairly and issue a credit to your account if fraud or billing errors are found.
Exception for serious credit card fraud
If the fraudulent charges are significant or involve potential identity theft, this requires a different strategy. In such cases, consult with the authorities and your card issuer to determine the best course of action. They may advise freezing your account or pursuing legal action while ensuring your credit score isn’t negatively impacted.
By paying first and disputing later, you protect your credit profile while allowing the investigation to proceed. It’s a proactive way to ensure disputes are resolved without lasting financial consequences.
Which credit report matters most?
There’s no shortage of online credit reporting services in Canada, from Equifax Canada and TransUnion Canada to secondary providers like Borrowell and Credit Karma. Some banks also offer basic credit reports upon request.
However, based on years of experience reviewing thousands of credit reports, I recommend prioritizing Equifax Canada and TransUnion Canada. These two agencies provide the most accurate and comprehensive information.
That said, a personal credit report you access yourself will never be as detailed or meaningful as the one a lender sees during a formal “hard inquiry.” Here is an article which explains why each of these sources of credit information will produce different results.
If you want to track your credit, Equifax Canada offers a free monthly report with a score. For more frequent updates, you can subscribe to credit monitoring services from Equifax or TransUnion for a monthly fee. These services can be helpful if you’re monitoring specific changes, such as updates following an investigation request.
When should you request an investigation?
If you notice outright errors on your credit report, you can request corrections from the credit reporting agencies. Here are some examples of common errors:
- Personal information: Incorrect name spelling, date of birth, or SIN.
- Incorrect tradelines: Accounts you don’t recognize, possibly due to fraud or mistaken identity.
- Settled debts showing as unpaid: This often happens with collections or accounts involved in consumer proposals or bankruptcies.
- Closed accounts with balances: Accounts that were closed and settled but still show balances owing.
Here is how to request an investigation at Equifax Canada and also at TransUnion Canada. Please do not expect any of the other score reporting agencies to be able to provide this service.
While it’s essential to correct errors, don’t sweat minor, irrelevant details like old employer information. Recently, I advised someone against obsessing over outdated employment records. These items are harmless and typically don’t affect your creditworthiness.
How to access your free credit report
To access your free Equifax credit report, follow these resources from personal credit expert Richard Moxley:
If you encounter errors that you can’t resolve yourself, consider contacting a credit professional like Richard for assistance.
The bottom line
When I began diving into personal credit more than 20 years ago, it was a niche topic that few Canadians understood. Today, credit scores and reports are common knowledge, but navigating the nuances can still be challenging.
If your credit is holding you back from securing a mortgage or achieving your financial goals, consult a knowledgeable mortgage professional. With the right guidance, you can optimize your credit score and secure the best possible outcome for your situation.
Here’s to better credit health and financial success in the new year!
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Last modified: January 3, 2025
