3 min read

Girl sitting on table, looking at phone and credit card

Rounding it up

  • Step 1: Keep your credit card balances low by maintaining a low credit utilization percentage (1-30%) to show responsible credit usage.

  • Step 2: Make all your payments on time to avoid damaging your credit score and prioritize covering necessities during financial challenges.

  • Step 3: Monitor your credit report for mistakes or inaccuracies that can negatively impact your credit score and take prompt action to correct them.

  • Remember to calculate your credit utilization percentage by dividing your total owed amount by your total available credit and multiply by 100.

  • By implementing these steps, you can improve your credit score and secure a healthier financial future.

If you’re here, you know that your credit score is important for many reasons, and likely looking to improve yours! You’ve come to the right place, because I am here to help.  There is so much information out there on how to improve your score, and a lot of it is full of complicated language, but you won’t find that here! I’m going to give you three things to work on to improve your score in easy-to-understand terms! So, let's dive right in!

Step 1: Keep Your Credit Card Balances Low

Something I get a lot of questions about is credit utilization percentage. Don't be intimidated by the term; it's just a way to measure how much of your available credit you're using.

Your available credit is how much credit you have on your credit cards and credit lines, otherwise known as your credit limits. To calculate your available credit, add up the credit limits on your credit cards and credit lines. This is your available credit.

The other number you need to calculate your overall credit utilization percentage is how much you currently owe on your credit cards and credit lines.

How can you calculate your credit utilization percentage? Take the total amount you owe and divide it by your total available credit. Multiply the result by 100 to get the percentage. This is your credit utilization percentage.

Credit Utilization Percentage = (Total Credit Card + Credit Line Balances / Total Available Credit) * 100

Why is your credit utilization percentage important? Lenders prefer to see a low credit utilization percentage because it shows you're not relying too much on credit. To help improve your credit score, aim to keep your credit utilization between 1% and 30%.

So, if you have $1,000 of available credit, try to keep your balance between $10 and $300. Having a 0% utilization is not ideal because it indicates that you aren’t using your credit. I have personally had months with utilization below 1%, and I did see my credit score drop a little bit.

To help keep your credit utilization percentage low, you can make more frequent payments on your credit cards and credit lines. There is no limit to how often you can make payments!

Step 2: Make All Your Payments On-Time

Paying your bills on time may sound obvious, but it's crucial for your credit score because your payment history has the biggest impact on your credit score.  Missed payments can do a lot of damage to your credit score, and we want to avoid this. After missed payments, it takes quite a while for your score to recover. Making your next payment on time will not mean that your score gets back to what it was before your missed payment.

To help get those payments in on time, create a schedule or set reminders on your phone. It can be challenging these days with many bills being electronic. Personally, many of them end up in my junk mail folder! I set time aside on the same day each week to check my mailbox and email for any bills, so I don’t miss anything. Remember that it can take several business days for an online payment to get to where it needs to go, so be sure to consider that in your plans.

But what if money is tight? Life throws us curve balls sometimes, and if this has happened to you, making money tight, I encourage you to focus on covering your necessities first.

Yes, it sucks if you miss payments on a debt, but you have to take care of your immediate needs first. Focus on putting all your numbers together to see exactly where you stand. Look for any opportunities to cut or reduce any areas of your budget, and if you will be short on making any payments, it’s a good idea to reach out to your lender to let them know.

Step 3: Keep an Eye on Your Credit Report for Mistakes

The hard work that you’ve been putting into improving your score can disappear really quickly if there are errors or items end up on your credit report that don’t belong to you. Your credit report is like a report card for your finances, and it's important to make sure it is accurate. While this will only impact your score if you do find errors, it’s still in my top three because of how big the impact of errors can be.

Everyone in Canada has two credit reports (and two credit scores). That is because we have two credit bureaus, Equifax and TransUnion. When you’re looking for errors, it is important to look at both of them.

There are a few apps that share your credit report details with you for free, but you can also go directly to the source and get your reports directly from Equifax and TransUnion. Have a look to see all the different ways you can get your credit reports. This information is available to you for free, so if you land on a site that wants you to pay to see your report run!

Look out for any errors, such as wrong personal information or accounts that don't belong to you. If you see errors on your report, it’s important to take action to have them corrected as soon as you can. This can help improve your credit score and save you from future troubles.

By following these three steps, you're on your way to improving your credit score.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Sherry Andrew

Sherry’s love of personal finance began after she lost a long-term career. She began learning all she could about money to help her household. This led to training to become an Accredited Financial Counsellor Canada in 2018. She’s been helping individuals change their financial paths since then.