With no credit history, lenders have nothing to judge you by. The Financial Consumer Agency of Canada (FCAC) puts it plainly: “A poor or limited credit history may make it harder to borrow money or get a credit card. It may even affect your ability to rent a home or get a job.” The credit bureaus “create your credit report when you first borrow money or apply for credit,” so building credit starts with the first account that reports to them. This page sets out the products that start a file, the order to use them in and a realistic timeline. It is part of our credit score guides.
What a new file is built from
Credit bureaus and lenders “don’t share the exact details” of their formulas, FCAC says, but the common factors are your payment history, how much of your credit you use, how long your accounts have been open, the types of credit you have and how often you apply. For someone starting out, two matter most at once: paying on time (FCAC calls payment history “the most important part of your credit score”) and keeping balances low against limits. How credit scores are calculated explains each factor.
Step 1: a first credit card
The usual first account is a credit card, either unsecured or secured.
- A starter unsecured card. Some banks approve a first card based on income and a banking relationship. Students can apply for student cards, which FCAC notes “often have lower credit limits than standard credit cards”; our student credit card picks compare them. Newcomers have bank newcomer programs, covered in credit cards for newcomers.
- A secured card. You put down a deposit, and FCAC says institutions “normally set your credit limit at an amount that is equal to or higher than your deposit. The security deposit may range from a few hundred to a few thousand dollars.” It reports like any card. Our secured credit card picks compare deposits and fees, and should I get a secured credit card weighs it against the alternatives.
Either way, one or two small regular purchases a month, paid in full by the due date, build payment history without interest. Our list of the easiest credit cards to get covers which kinds of card approve applicants with no history.
Step 2: keep the reported balance low
Card issuers usually report your statement balance, and FCAC’s tip is to “Try to use less than 30% of your total credit limit.” On a low starter limit that can mean paying part of the balance before the statement date. Credit utilization explains the ratio and the timing.
Step 3: an authorized user card isn’t a substitute
Being added to a family member’s card gives you a card to use, but FCAC’s guidance for additional cardholders is that “any purchases you make using the card won’t help you build your credit history.” Being an authorized user covers what that arrangement does and doesn’t do; an account in your own name is what builds your file.
Step 4 (optional): add an instalment account
FCAC says “You may have a lower credit score if you only have 1 type of credit product.” A credit-builder loan adds an instalment account without a credit check at many providers, and a small loan from your bank or credit union does the same once you qualify. Some phone, internet and utility accounts can also appear on a credit report, according to FCAC, though not every provider reports.
Step 5: a second card, later
After a year or so of on-time payments, a second unsecured card raises your total limit and adds a second account. Spacing applications out keeps hard inquiries from piling up; how long to wait between credit card applications covers the timing and soft vs hard credit checks explains which checks count.
How long it takes
There’s no fixed schedule, because each lender reports on its own cycle and each bureau uses its own model. Some general points:
- A first score. It needs an account that has reported to a bureau for a few months; FCAC says bureaus “update your credit report at least once per month.”
- A usable score. With every payment on time and low balances, the score tends to build steadily through the first year or two; how fast depends on the accounts and the bureau.
- A strong score. The length of your history keeps adding over several years, which is why keeping your first no-fee card open matters (does closing a credit card hurt your score explains why).
What each score band means to a lender is in credit score ranges. To check that both bureaus are picking up your new accounts, see checking your credit score for free; Canada’s two bureaus are compared in Equifax vs TransUnion.
What slows credit building down
- A late payment. One missed payment stays on the report for years; what happens if you miss a credit card payment explains how it’s reported.
- High balances. A balance near the limit lowers the score even when every payment is on time.
- Several applications in a short time, each adding a hard inquiry.
- Closing your first card once you have a better one, which eventually shortens your history.
- Not using the card at all, since an inactive account may not report activity and can be closed by the issuer.
If you’re starting over after a bankruptcy, consumer proposal or missed payments rather than from zero, rebuilding credit after bankruptcy covers the extra steps.