Your daily choices—like swiping a card, making a payment or even skipping one— can affect your credit score. But which ones actually improve it, and which ones harm it? Here’s a breakdown of the five key factors that impact your credit score in Canada.
What is a credit score?
A credit score is a three-digit number that represents your creditworthiness, which is essentially how reliable you are when it comes to borrowing money. It is calculated by major credit bureaus like Equifax® and TransUnion® using data from your credit report.
A good credit score can affect whether or not you’re approved for loans, get low interest rates, or even determine rental agreements. The higher your number, the more trust you build with financial institutions.
What affects your credit score? 5 key factors to consider
Credit bureaus like Equifax® and TransUnion® each have their own credit scoring models for calculating credit scores. However, they generally focus on five crucial factors that significantly influence your score. Here’s what they consider most:
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Payment history
According to Equifax, your payment history plays a prominent role in calculating your credit score. Late payments, especially those 30 days or more overdue, can linger on your credit report for seven years. For example, missing a $50 credit card payment might seem minor, but it signals credit risk to lenders.
To help avoid late payments, you can set up automatic payment reminders or calendar alerts on your mobile phone.
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Amounts owed
Credit utilization ratio—the percentage of available credit you use—also plays a massive role. Financial experts recommend keeping this ratio below 30%. If you have a $10,000 total credit limit across all credit accounts, aim to owe no more than $3,000. Maxed-out cards raise red flags, suggesting financial strain.
One popular method of tackling high debt is the avalanche strategy, which involves first paying off the card with the highest interest rate.
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Types of credit
Credit bureaus also appreciate a diverse credit mix, such as a blend of installment loans (e.g., mortgages) and revolving credit (e.g., credit cards). A homeowner with a mortgage, a low-balance credit card, and a responsibly managed line of credit typically scores higher than someone relying solely on a credit card.
However, avoid opening multiple accounts just for diversity, as that can lead to accumulating a higher amount of debt, not to mention juggling multiple due dates.
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New credit
Every credit application results in a “hard inquiry,” which can impact credit scores. Applying multiple times quickly makes this worse, as lenders see it as risky. Note that checking your credit score with either credit bureau is considered a “soft check” and does not impact your credit score.
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Length of credit history
The average age of all your credit accounts also plays a role in determining your credit score. Maintaining long-standing accounts showcases financial stability and reliability. So even if you no longer use your oldest credit card, it’s wise to keep it active. Closing it can shorten your credit history and potentially lower your score, as it reduces the overall length of your credit profile.
What doesn’t affect your rating
Contrary to popular myths, your income level, debit card usage, and credit application denials have no direct impact. Personal credit checks (a “soft inquiry”) are harmless—in fact, regularly checking them annually helps catch errors or fraud. You may also get your free credit score reports online. Lastly, high interest rates on existing loans don’t hurt unless you miss payments.
How to improve your credit score? Consider these positive factors
There are also positive factors that can influence your credit score. These are:
- Paying bills on time: Lenders prefer to see that you’ve been paying your bills on time or at least making the minimum payment required. You can automate at least the minimum payment on all accounts to avoid late fees.
- Having a diverse credit mix: This includes cell phone bills, credit cards, auto loans, consumer loans, and mortgages. These credit accounts should be.
- Maintaining good credit history: To maintain a long credit history, keep your oldest credit accounts, even if you rarely use them.
If you’re interested in learning more, we’ve compiled a list of tips to boost your credit score in Canada.
Build credit while you borrow with Alpine Credits
Did you know 62% of Canadians count on their home equity’s potential to strengthen their credit and fund life goals? Alpine Credits offers a unique solution: access funds based on your home equity without strict credit score requirements. Consolidate multiple high-interest debts into one low-rate loan, free up cash for home renovations, or jumpstart a new business venture—all while building credit through consistent, manageable payments.
Interested in tapping into your home equity? Homeowners can access up to 75% of their home equity. Here’s how:
- Apply Online – You can submit your application online without providing your credit score or income history. Just share the value of your home equity.
- Get Approved – If you’re a homeowner with equity in your property, you’re eligible for a home equity loan. Lenders may also consider your bank account balances when assessing your eligibility.
- Use Your Funds Freely – Once approved, you can use the funds for debt consolidation, home renovations, or property investment. The choice is yours.
Contact a Financial Solutions Specialist at Alpine Credits today for more information or to get a free, no-obligation quote.
Frequently Asked Questions
What are 5 factors that affect a credit score?
The five key factors are payment history, amounts owed, types of credit, new credit, and length of credit history.
What affects credit score negatively?
Late payments (30+ days overdue), high credit utilization (>30%), frequent hard inquiries, and closing old accounts negatively affect credit scores.
Does checking your credit score affect it?
No—personal checks (soft inquiries) don’t affect scores, but lenders’ credit applications (hard inquiries) cause temporary dips.
Does line of credit affect credit score?
Yes—improving credit mix is beneficial if managed properly. Still, scores may be negatively impacted if utilization exceeds 30% of the limit.
Does getting a loan affect your credit score?
Temporarily lowers it via a hard inquiry, but on-time payments and credit mix improvements can raise it long-term.