How Long Does It Take To Build Credit in Canada?

Credit can have a big influence on your life. Having a low credit score can impact your ability to buy a home, rent an apartment, get an auto loan, qualify for a line of credit, and even get a job. However, your credit score is something you can improve, with some patience and hard work. 

Building credit doesn’t happen overnight. How long it takes will depend on several factors, but knowing how to improve your credit score is a great skill to have, especially if you have financial goals that require good credit.

Read on to learn the process and timeframe for building a credit score, plus strategies for improving and maintaining good credit.

Understanding Credit Scores and Reports

It is important to understand how your credit score is calculated and what actions may impact it. A credit score is a number between 300 at the low end and 900 at the high end that companies and lenders use to predict how financially reliable and responsible you are. 

Your credit score is calculated by credit bureaus that convert information on your credit report using a formula called the FICO formula. Your credit report is essentially a record of your financial behaviours and actions towards your credit products like credit cards, loans, and bill payments.

Below are the factors that make up your credit score and a percentage indicating how important they are when it comes to calculating your score: 

• Payment History (35% of your credit score) – how timely you have been when making payments on past and current debt. Any missed payments or payments that are less than the minimum amount may drop your score. 
  
  
• Credit Utilization (30% of your credit score) – how much of your available credit you are using.
   
• Credit History (15% of your credit score) – the length of time you have been using credit. 
  
  
• Diversity of Credit (10% of your credit score) – how many different types of credit you have.

You can obtain your credit report for free through Canada’s two credit bureaus, Equifax and TransUnion. You can also obtain your credit score at no cost from Equifax, however, getting your score from TransUnion will require a fee. Each credit bureau maintains their own credit reports and credit scores, but they shouldn't vary too much.

"Building a solid credit foundation is not just about borrowing money, it's about opening doors to your financial future. I've witnessed firsthand how understanding credit can empower individuals to navigate the financial landscape with confidence."

- Himank Bhatia, Credit Canada Credit Counsellor.

Building Credit: How to Get Started

If you’ve never opened a credit card, account, or any type of loan, you will not have a credit score on record. You need to open up an account or get yourself a credit card before you can establish a positive – or negative – credit history.

If you’re a newcomer to Canada, a young adult or you just haven’t had a lot of opportunity to build up a credit score, it’s important to build credit history as soon as possible. This is because your credit score can impact what loans you qualify for, what interest rate you pay, what you can buy, where you work, and where you live. Getting started requires applying for the right credit products, using them responsibly and paying all of your bills on time. This can include:

• Getting your first credit card
• Getting a secured credit card
• Taking out an auto loan
• Using a co-signer to obtain a loan or credit card

Build your credit score with expert advice and personalized strategies from our certified Credit Counsellors. Start building your credit today!

Timeline for Building Credit

Scores over 700 are considered to be good, but they can take time to obtain. So how long does it take to build credit in Canada? 

Establishing Credit from Scratch

It takes time to build an excellent credit score in Canada, however, it only takes about six months to build up enough credit history to get a base-level credit score. The minimum requirements to generate a score under the FICO formula are having at least one account that has been open for three months or more, and at least one account that has been reported to the Credit Reporting Agency within the past six months.

Improving Established Credit 

How long it takes to improve your credit scores depends on where you’re starting, how you got there, and what level you want to get to. Going from poor to excellent credit scores will take longer than if you’re starting with new credit. This is because you are rebuilding credit to combat any negative activity in your credit history. 

For example, recovering from a few recent hard credit inquiries might not take as long as working back from late payments, which can stay on your credit reports for years. 

“On average, it may take anywhere from 12 to 24 months of responsible credit management to see a significant improvement in your credit score. Expect six to seven years of very responsible credit management to achieve a high credit score."

- Himank Bhatia, Credit Canada Credit Counsellor.

Factors that Impact How Quickly You Can Build Credit

The amount of time it takes to build your credit from scratch or increase your credit score depends on your credit profile, which can be very different for each person. Also, certain activities can lower your credit score more than others. For example, being late on a single payment won’t affect your credit score as much as your account being sent to collections for multiple missed payments. Accurate negative information on your credit report cannot magically go away; it’s there until it falls off your credit report, which takes about six years. However, enough positive activity can help mitigate this.

Why Does Building Credit Take Time?

Building good credit takes time because credit bureaus want to see that you can manage credit over a long period. It’s not enough to make all your payments on time for just a year or two; credit bureaus only assign the highest scores to those who prove they pay off their debts and manage money well over the span of years. 

Improving and Maintaining Your Credit Score

If your credit report or score isn’t where you’d like it to be, the only way you can go about “fixing” it is by rebuilding it with a positive credit history. You have to show your creditors that your financial habits have improved and you’ve maintained these positive behaviours over a period of time, including:

Timely Bill Payments 

Making consistent on-time payments is one of the best things you can do to both protect and boost your credit score. Late payments have a negative impact on your credit score, so be sure to at least pay your monthly minimum payments for each debt you currently have. If you notice you’re having difficulty making your monthly minimums on time, try to avoid adding to your debt. 

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Credit Utilization

Another crucial aspect that affects your credit score is your credit utilization ratio – the percentage of your credit limit that you are currently using. Having and utilizing credit responsibly can actually boost your credit score as making timely payments and spending within your means showcases your creditworthiness to lenders. But that doesn’t mean you want to use all of the credit available to you. Keeping your loans, lines of credit, and credit card balances low, ideally below 30% of your limit, can demonstrate responsible credit management. 

Diversifying Credit Types

It’s important to have both installment loans and revolving credit to maintain a good credit score. Installment loans (student loans, mortgages and car loans) show that you can pay back borrowed money consistently over time. Revolving credit, such as credit cards, show you can spend borrowed money up to a predetermined limit, repay it with your personal cash flow, and spend it again. 

Maintaining this mix of credit demonstrates that you can handle multiple types of credit, but make sure you're able to pay back any money you borrow. Otherwise, you might end up hurting your score by taking on too much debt.

In addition, there are certain strategies you can take to ensure long-term credit health, including: 

Regularly Review Your Credit Report

It is important to review your credit report at least once a year from either credit bureaus, a third-party service, such as Credit Karma or Borrowell, or your bank’s website or mobile app. Look over the report to see what’s documented and if the information is correct. For no charge, you can remove incorrect information by filing a dispute directly with the credit bureau.

Work to Pay Off Your Debts

Work towards paying down your current debts by putting the most money towards your unsecured debts first, such as payday loans, credit cards or personal loans, as these tend to have the highest interest rates. A history of consistently paying down debts can be a good starting point for building your credit.

Create and Follow a Budget

It is crucial to stay on track with your finances to avoid missed payments when it comes to building credit. There are many online budgeting tools and apps that can help you establish a realistic spending plan, including Credit Canada’s free Budget Planner. Remember, the key to a successful budget is sticking to it!

Consult an Accredited Credit Counsellor

If you need help getting started, call Credit Canada for personalized advice on how to improve your credit. A certified credit counsellor can provide advice tailored to your specific situation – and their counselling services are completely free. They can even review your credit report and advise you on how to best address your debts to increase your credit score.