How to improve your newcomer credit score without taking on loads of debt

The formula that credit bureaus use to determine credit scores is not widely known. But if you’ve ever gotten your score from different sources only to find they don’t match up, it’s clear not all bureaus use the same calculations Opens in a new window..

Still, the following factors likely have an effect on your credit score:

• credit card balances
• history of missed payments
• total outstanding debt as a percentage of your total credit limit
• length of time you’ve had credit
• maxing out your credit cards
• mix of credit types
• recent credit applications
• insolvency, bankruptcy, or collections

The good news? You don’t need to dig yourself into a ton of debt to build up a great credit score. Here are 8 ways you can improve your score while maintaining a reasonable debt load.

1. Go slow and steady

The first thing to know is you’re playing the long game here. It might be tempting to apply for several credit cards at once to get your credit score rolling, but that could actually hurt rather than help. So yes, start now, because the length of time you’ve had credit matters — but take it slow. Move forward on your credit journey at a steady pace.

2. Make use of rent reporting

If you’re renting your home, you’re likely spending a large part of your income on housing costs. Until fairly recently, it wasn’t easy to have rental payments reflected in your credit score. But if you live in British Columbia, Alberta, Saskatchewan, Manitoba or Ontario, you can report your rent payments through the Landlord Credit Bureau (LCB) Opens in a new window.. You’ll need your landlord to sign up too, but it could be well worth the effort.

Note, though, that LCB only reports payments to Equifax and not TransUnion Opens in a new window.. Only your Equifax score will be affected.

3. Sign up for a cell phone plan

Unlike in the U.S., many cell phone providers in Canada report payments to credit bureaus. This means you can use your monthly cell plan payments to help build your credit score. If you need a phone anyway, it’s a good idea to do your research and go with a provider that reports payments. And keep in mind that prepaid phone payments typically aren’t reported, so you’ll need to opt for a postpaid plan.

4. Apply for a secured credit card

You do need to apply for credit to build your credit score. But you might find yourself in a tricky cycle: it’s hard to get a credit card until you have a better credit score, but you need that card to improve your score to start with. If this is the case, a secured credit card may be the way to go. Getting approved may be easier than with a traditional credit card, although you’ll need to put a security deposit down. Even though the bank hangs onto your deposit, you’ll still need to make regular payments when you use the card, and those payments are reflected in your credit history.

5. Get a mix of credit

You do need to apply for credit to build your credit score. But you might find yourself in a tricky cycle: it’s hard to get a credit card until you have a better credit score, but you need that card to improve your score to start with. If this is the case, a secured credit card may be the way to go. Getting approved may be easier than with a traditional credit card, although you’ll need to put a security deposit down. Even though the bank hangs onto your deposit, you’ll still need to make regular payments when you use the card, and those payments are reflected in your credit history.

6. Say yes to a higher credit limit

This might sound counterintuitive when you don’t want to take on a ton of debt, but if you get offered a higher credit limit, it’s a good idea to say yes. This is because your credit utilization ratio or credit usage rate has a significant impact on your credit score. This number is calculated by taking the total amount outstanding on your credit and dividing that number by the total amount of credit available. The rule of thumb is to keep this number below 35 per cent Opens in a new window..This is easier to do if you have higher credit limits, as long as you don’t increase your credit balances.

7. Make your payments on time

It’s essential to make your payments on time. While it’s hard to say how much of an impact a missed payment will have on your credit score, missed payments are considered negative information Opens in a new window.. They’ll stay in your credit report for 6 years. At the very least, be sure to make the minimum monthly payment — but it’s always better to try and pay off your balance in full.