Debt Managements

How long does it take to build credit in Canada?

Credit can have a huge impact on your life. Having a low credit score can affect your ability to buy a home, rent an apartment, get a car loan, qualify for a line of credit, and even get a job. However, your credit score is something you can improve, with some patience and hard work.

Building credit doesn’t happen overnight. How long it takes depends on several factors, but knowing how to improve your credit score is a great skill to have, especially if you have financial goals that require good credit.

Read on to learn the process and time frame for building a credit score, as well as strategies for improving and maintaining good credit.

Understand credit scores and reports

It’s important to understand how your credit score is calculated and what actions may affect it. A credit score is a number ranging from 300 on the low end to 900 on the high end that companies and lenders use to predict how reliable and financially responsible you are.

Your credit score is calculated by credit bureaus that convert the information in your credit report using a formula called the FICO formula. Your credit report is essentially a record of your financial behaviors and actions toward credit products such as credit cards, loans, and bill payments.

Here are the factors that make up your credit score and the percentage that indicates how important they are when it comes to calculating your score:

  • Payment history (35% of your credit score) – The extent to which you adhere to the appropriate time when making previous and current debt payments. Any missed payments or payments less than the minimum amount may result in your score being lowered.
  • Credit utilization (30% of your credit score) – How much of your available credit you are using.
  • Credit history (15% of your credit score) – The length of time you have been using the credit.
  • Credit diversity (10% of your credit score) – How many different types of credit do you have?

You can get your credit report for free through the two credit bureaus in Canada, Equifax And TransUnion. You can also get your credit score at no cost from Equifax, however, getting your score from TransUnion will require a fee. Each credit bureau maintains its own credit reports and credit scores, but they shouldn’t vary much.

“Building a solid credit foundation is not just about borrowing money, it is also about opening doors to your financial future. I have witnessed first-hand how understanding credit can empower individuals to navigate the financial landscape with confidence.”

– Hemank Bhatia, Credit Consultant at Credit Canada.

Building Credit: How to Get Started

If you have never opened a credit card, account, or any type of loan, you will not have a credit score on record. You need to open an account or get a credit card before you can establish a positive or negative credit history.

If you are a newcomer to Canada, a young adult, or have not had much opportunity to build a credit score, it is important to build a credit history as soon as possible. This is because your credit score can affect the loans you qualify for, the interest rate you pay, what you can buy, where you work, and where you live. Getting started requires applying for the right credit products, using them responsibly and paying all your bills on time. This can include:

  • Get your first credit card
  • Get a secured credit card
  • Getting a car loan
  • Use a participating site to obtain a loan or credit card

Credit building timeline

Scores above 700 are considered good, but can take some time to obtain. So, how long does it take to build credit in Canada?

Establish credit from scratch

It takes time to build an excellent credit score in Canada, however, it only takes about six months to build enough credit history to have a basic-level credit score. the Minimum requirements To receive a score under the FICO formula, you must have at least one account open for three months or more, and at least one account that has been reported to a credit reporting agency within the past six months.

Improve solid credit

The time it takes to improve your credit score depends on where you start, how you got there, and what level you want to reach. It will take longer to go from poor to excellent credit scores than if you were starting with new credit. This is because you are rebuilding credit to combat any negative activity on your credit history.

For example, recovering from some recent hard credit inquiries may not take as long as processing late payments, which can remain on your credit reports for years.

“On average, it can take 12 to 24 months of responsible credit management to see a significant improvement in your credit score. Expect six to seven years of very responsible credit management to achieve a high credit score.

– Hemank Bhatia, Credit Consultant at Credit Canada.

Factors that affect how quickly you build credit

The amount of time it takes to build your credit from scratch or increase your credit score depends on your credit file, which can be very different from person to person. Also, some activities can lower your credit score more than others. For example, being late on a single payment won’t affect your credit score as much as sending your account into collections for multiple missed payments. Subtle negative information on your credit report can’t magically disappear; It exists until it falls off your credit report, which takes a long time About six years. However, enough positive activity can help alleviate this.

Why does building credit take time?

Building good credit takes time because credit bureaus want to see that you can manage credit over a long period. It’s not enough just to make all your payments on time for a year or two; Credit bureaus assign top scores only to those who prove they have been paying off their debts and managing money well over a period of years.

Woman with curly hair smiling

Improve and maintain your credit score

If your credit report or score isn’t where you want it to be, the only way you can “fix” it is to rebuild it with a positive credit history. You must prove to your creditors that your financial habits have improved and that you have maintained these positive behaviors over a period of time, including:

Pay bills on time

Making consistent, on-time payments is one of the best things you can do to protect and boost your credit score. Late payments negatively impact your credit score, so make sure you pay at least your minimum monthly payments for each debt you currently have. If you notice that you are having difficulty paying the monthly minimum on time, try to avoid increasing your debt.

Use of credit

Another important aspect that affects your credit score is your credit utilization ratio – the percentage of your credit limit that you are currently using. Obtaining and using credit responsibly can actually boost your credit score as making timely payments and spending within your means shows your creditworthiness to lenders. But that doesn’t mean you want to use all your available credit. Keeping your loans, lines of credit, and credit card balances low, ideally less than 30% of the maximum, can demonstrate responsible credit management.

Diversify types of credit

It is important to have installment loans and revolving credit to maintain a good credit score. Installment loans (student loans, mortgages, and car loans) show that you can consistently repay the borrowed money over time. Revolving credit, like credit cards, shows that you can spend borrowed money up to a predetermined limit, pay it back with your personal cash flow, and spend it again.

Maintaining this mix of credit shows that you can handle multiple types of credit, but make sure you can repay any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.

3 Steps to Building Your Credit Score in Canada and Types of Credit (1800 x 1000 pixels) (1)
Additionally, there are some strategies you can follow to ensure long-term credit health, including:

Review your credit report regularly

It is important to review your credit report at least once a year from any credit bureau, or third-party service, e.g Credit Karma or BurwellOr your bank’s website or mobile application. Take a look at the report to see what was documented and whether the information is correct. At no charge, you can remove incorrect information by filing a dispute directly with the credit bureau.

Work to pay off your debts

Work to pay off your existing debts by putting the most money toward paying off your unsecured debts first, such as payday loans, credit cards, or personal loans, as these tend to have the highest interest rates. A history of consistently repaying debt can be a good starting point for building your credit score.

Create and follow a budget

It’s essential to stay on track with your finances to avoid missing payments when it comes to building credit. There are many online budgeting tools and apps that can help you create a realistic spending plan, including Credit Canada’s free Budget Planner + Expense Tracker. Remember, the key to a successful budget is sticking to it!

Consult a certified credit counselor

If you need help getting started, contact Credit Canada for personalized advice on how to improve your credit. A certified credit counselor can provide advice that fits your specific situation – and their counseling services are completely free. They can also review your credit report and advise you on the best way to address your debt to increase your credit score.

Woman talking to credit counselor

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