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How to build a great credit score from scratch

25 July 2022Tassie Milne 3 min read
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If you don’t have a credit history, building a great credit score from scratch can seem daunting. But while it does require some time and patience, it isn’t too difficult if you know how to go about it.

You’ll need a credit history to get everything from personal loans to credit cards, but also products like pay-monthly mobile phone contracts and utilities paid by direct debit. Here's how you can build a great credit score, even if you're starting right from scratch.

If you haven't already got one, having a Canadian chequing account benefits your credit report in three ways:

  • A long-held bank account can make you appear more stable to lenders, as it proves you have a good ongoing relationship with your bank
  • It allows lenders to verify your residency
  • It helps you manage your money and make payments on time, which ultimately affects your credit score

To open a bank account, you’ll usually need proof of ID (such as your passport) and proof of your address.

It’s hard to get credit if you don’t have a credit history. But you can’t have a credit history if you’ve never had credit. It’s a bit of a chicken and egg situation.

So what can you do instead? Here are some ideas:

Put your utilities, broadband and other household bills in your name

More and more, companies such as utilities and broadband providers are sharing data with credit bureaus. If you don’t have a credit history, putting these bills in your name is your opportunity to start building your score.

For best results, check that your name is spelled correctly and always write your address in the same format. Even something as simple as a misspelled street name could lead to inaccuracies in your report.

Pay by direct debit whenever possible

If you have bills in your name, it’s important that you always pay them in full and on time. The best way to do this is to set up direct debits. This ensures you won’t forget a bill, because the money leaves your account automatically.

Of course, you’ll always need to have enough in your account to cover what you owe. Otherwise, your payments won’t go through. If this happens repeatedly, it could damage your score.

Once you’ve been managing your finances responsibly and paying your bills on time for a while, it’s time to apply for your first credit card - a credit builder card. You should be ready for this step after about six months.

Credit builder cards are designed specifically for people with little or no credit history. They rarely have any perks. However, they’re a powerful way to improve your credit score.

Credit cards affect your credit score, so you do need to be careful:

  • Use an eligibility checker before you apply. An eligibility checker lets you find out your chances of being accepted without affecting your credit report and score.
  • Make small, regular purchases. A good rule of thumb is to never use more than 50% of your available credit limit. This shows your credit card provider you can manage credit responsibly.
  • Always pay your statement balance on time and in full. You can pay just part of your balance, the ‘minimum payment’, without damaging your credit score. However, the remainder will attract interest. Credit builder cards have high interest rates. So, if you’re not careful, your debt can quickly spiral out of control.

You’ve managed your bank account responsibly, paid all your bills on time every month and used a credit builder card to build up your credit score. Now, it’s time to start reaping some of the benefits of your hard work.

Once you’ve built up your credit score to a certain level, you’ll have a greater chance of qualifying for a better credit card. Aside from a lower interest rate and a higher credit limit, a new credit card could also give you the following:

  • rewards such as cashback or travel
  • no annual fee

Of course, you still need to approach with caution, as otherwise you may do more harm than good. In particular, you should:

  • Check your eligibility using ClearScore’s eligibility checker before applying.
  • Avoid making several applications in a short period, as this could negatively affect the credit score you’ve worked so hard to build.
  • Try not to use more than 30% of your credit limit and always pay what you owe on time.

Building a great credit score takes time. The longer you keep using credit responsibly and paying on time, the more your score will improve. It’s that simple.

It’s also worth checking your credit report regularly. That way, you can stay on top of your score and fix any problems before they can have a negative impact.

Tassie Milne Image

Written by Tassie Milne

General Manager - ClearScore Canada

Tassie heads up ClearScore Canada. She lives in Toronto with her husband and two young boys. In her free time, she can be found at the family lake house or playing ball hockey.