A lot of people do not pay much attention to their credit score until it suddenly matters. A mortgage application, renting an apartment, or sometimes even while applying for a job. And by that point, there is often very little time to do anything about it.
The reality is, your credit score influences more than your ability to borrow money. For example, a difference of 50 to 100 points in your score can mean a higher interest rate that could cost you thousands of dollars over the life of the loan.
Understanding what your credit score is actually measuring, and what affects it, is one of the most practical things you can do for your financial future.
What your credit score is ACTUALLY measuring
In Canada, credit scores range from 300 to 900. Anything above 660 is generally considered good. Above 725 is very good, and above 760 is excellent.
The number is built from five factors, and the good news is that most of them are within your control. Here is how each one works:
- Payment history makes up roughly 35% of your score. It tracks whether you pay on time. Every on-time payment builds it. Every late or missed payment pulls it down, and those marks can remain on your credit report for years.
- Credit utilization is the next biggest factor at around 30%. This is the percentage of your available credit that you are actually using. If your credit card limit is $5,000 and you’ve spent 4,000, your utilization is 80%, which lenders may see as a red flag because it suggests you’re relying heavily on credit. Keeping this under 30% can improve your score.
- Credit history length accounts for about 15%. The longer your accounts have been open, the more history lenders have to assess. Older accounts work in your favour.
- Credit mix counts for about 10%. This looks at the variety of credit types you already have – like a credit card, a car loan, and a line of credit. This also shows that you can manage different kinds of credit responsibly.
- New credit makes up the remaining 10%. Every time a lender performs a hard credit check, it can temporarily lower your score. Multiple hard inquiries in a short window can suggest to lenders that you are urgently seeking new credit, which can raise concerns about your risk as a borrower.
The myths that keep people stuck
There is a lot of misinformation about credit scores, and some of it is costing people money. Here are three that come up the most:
Myth 1: Carrying a balance on your credit card builds your credit.
It does not. What builds credit is using your card regularly and paying the full balance on time. Carrying a balance means you are paying interest at rates that typically start around 19.99% in Canada, while doing nothing to improve your score.
Myth 2: Checking your own score hurts it.
This is false. Checking your credit score through free apps like Borrowell or Credit Karma has no impact on your score. You can check it as often as you like.
Myth 3: Closing old credit cards helps your score.
In most cases, the opposite is true. Closing an old card shortens your credit history and increases your overall utilization rate, both of which can lower your score.
Habits that work against your score
A credit score is built over time, and so are the habits that affect it. Here are a few that commonly work against what you’re trying to build:
- Paying bills a few days late, even occasionally, can show up as a late payment on your report.
- Making only the minimum payment on your card every month keeps your utilization high while you pay significant interest on the rest.
- Applying for multiple credit products in a short period triggers several hard inquiries that can temporarily pull your score down.
- And one that catches people off guard: never using credit at all. If you have a credit card but rarely use it, lenders have very little recent activity to assess, which can make it harder for your score to grow.
3 practical ways to improve your score
The good news is that credit scores respond to the right habits relatively quickly. Start with these three:
Pay on time, every time.
Set up automatic payments on every account so you never accidentally miss one. Then, wherever possible, pay the full balance rather than just the minimum.
Bring your utilization down.
If you can keep what you spend on your card to under 30% of your credit limit, you will see a difference. If you have a card with a low limit that you use heavily, requesting a credit limit increase can lower your utilization without requiring you to open another account. Do this responsibly – not if you feel like it could increase your debt.
Keep old accounts open.
If you have a credit card you barely use, charge something small to it every few months and pay it off. This keeps the account active, prevents the issuer from closing it due to inactivity, and protects the length of your credit history without any extra effort on your part.
Note: Quick wins, like lowering your utilization or catching up on payments, can show up in your score within a month or two. Building a longer credit history and clearing negative marks takes longer. A realistic expectation for meaningful, sustained improvement is anywhere from six months to a year, depending on where you are starting from.
Why improving your score is worth it
Most people underestimate how far their credit score reaches.
A strong credit score gives you more financial options. It affects whether you’re approved and the kinds of financial products you can qualify for. Better rewards cards, higher credit limits, and more competitive interest rates are generally available to people with stronger credit.
The gap between what someone with a 620 score can access and what someone with a 750 score can access is larger than most people realize.
Instead of settling for whatever is available, you have the flexibility to choose what works best for you. And unlike many financial numbers, this one is largely within your control.
Join the accountability group
Most people know they should pay attention to their credit score. The harder part is knowing which pieces of their credit report matter, whether what they have been doing is helping or working against them, and where to start when they want to improve it.
You do not have to work through that alone. The Don’t Go Broke Collective is where we work through this together: the credit habits, the savings strategy, the investing decisions, and the debt repayment, because none of it exists in isolation from the rest of your finances.
The group includes monthly Ask Me Anything sessions where you can bring your own money questions, live sessions on investing, taxes, and real estate, plus weekly prompts that keep you accountable between meetings. If improving your credit score has been on your to-do list for a while, this is the structure that can help you finally make progress.
Over 200 members are already in the room, getting clear answers to their biggest money questions and watching their finances improve. Come join them.
CTA: Join the Don’t Go Broke Collective
For my Nigerian community: You’ll need a VPN to access Skool. Make sure you have one set up before you join so you can get straight in.
Until next time,
xoReni
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