What is a Good Credit Score in Canada?
Canadians who are savvy about their finances want a good credit score. They know that having a high score grants them access to several different credit products, and often the lowest interest rates available. That begs the inevitable question: What is a good credit score in Canada?
First things first: What is a credit score?
Before getting into what a great score is and what isn’t, you should know what a credit score is.
A credit score is a number assigned to you by a credit bureau—either TransUnion or Equifax.
In Canada, credit scores range from 300 to 900. This score is on your credit report and will determine your creditworthiness. It will also affect what kind of mortgage rate you can get, the interest rate on personal loans such as car loans, whether or not you’ll qualify for certain credit cards, and much more.
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Poor to Excellent Scores
Borrowers are assigned a score in Canada, but it means something different depending on how high or low your score is.
What is a good credit score in Canada ranges from 660 to 724. And with this score, financial service providers will use it to decide how much credit they’ll offer and whether or not they will provide you with credit.
Not everyone’s situation is the same, but a higher score usually shows that you’re more likely to pay your bills on time, and you’re less likely to default.
Here’s a rundown of the credit rating ranges and what each score means:
- 300 to 559: This credit range is considered a poor credit score. You will likely have trouble borrowing money or getting credit with this score.
- 560 to 659: This is a fair score. You will be able to get credit, but your credit options are likely limited to secured credit cards.
- 660 to 724: This is a good score. Your chances of being approved for credit are good, and your rates should be fairly reasonable.
- 725 to 759: This is a very good score. You should get better rates on loans and lines of credit and qualify for most credit products.
- 760 to 900: This is an excellent score. While this doesn’t mean you can get as much credit as you want, you should get the best rates, and creditors will be very willing to lend to you.
How your credit score is determined in Canada
Several aspects determine your credit score. Equifax and TransUnion both use a different formula when credit reporting.
While undisclosed, it’s known that the five factors below—along with their approximate weightings—affect your credit rating.
Payment history (~35%)
Your payment history will show information on the payments you’ve made to a credit account, such as a student loan, mortgage, credit card, line of credit, department store card, or home equity line of credit.
Payment history also shows missed and late payments, along with how long it took you to make any overdue payments.
Credit utilization ratio (~30%)
This measures how much of your credit you’re using on your credit cards and lines of credit.
If you only have one type of credit account, such as a credit card with a $2,500 credit limit, and you regularly spend $1,250 every month, your credit utilization ratio is 50%.
Credit history (~15%)
This section of your credit report shows how long you’ve had your various accounts. The calculation of your score will usually include the length of time between your oldest and newest accounts.
Public records (~10%)
In this section, there will be any items that are available to the general public.
These are either federal, provincial, or municipal public records such as bankruptcy filings or property liens.
Whenever your credit file is accessed, there’s a record of each inquiry. These inquiries whenever you apply for credit and are typically called hard pulls.
If you want to get a copy of your credit report or your score, there is a record kept of this inquiry. It is known as a soft credit check.
How to Increase your Credit Score
Now that you know what a good credit rating is in Canada and you’re below that level or want to try to increase it, there are some steps you can take to improve your credit score.
1. Keep track of your payment history
To do this, pay your bills on time. If you want to be extra diligent, you can set up recurring bill payments from your bank account to make at least the minimum payment every month. Paying bills on time helps ensure a late payment doesn’t show up on your credit history.
2. Don’t overspend
You should use only the amount of credit you need and avoid going over your limit.
If you use many of your available credit, lenders will consider you to be a riskier borrower. Ideally, your credit utilization ratio should remain below 30%.
3. Have a good credit history length
Your score improves the longer you have an account open but may fall if you have any new credit accounts. That’s why it’s a good idea to keep an older account open even if it’s no longer in use. Try to ensure that there isn’t a fee if you’re not using the account.
4. Don’t apply for too much credit
You may feel tempted to apply for various credit card sign-up bonuses. However, this will result in several credit checks and make it appear as though you need a lot of credit. Expect your score to fall if you do this.
5. Use different types of credit
Having one type of credit account isn’t good for your score. But when you have different types of credit accounts simultaneously, such as a personal loan, line of credit, and credit card, it can help boost your score.
Having a good credit report in Canada will help you achieve some of your financial goals, such as buying a home.
Improving your credit will allow you to get more credit and avoid having credit with high-interest rates or even allow you to complete a credit card balance transfer.
Finally, you can get a credit check online. Many services providing this information charge a fee, though there are many free credit check services available.
Frequently Asked Questions
The general rule is to use your credit card at least once monthly. However, when you use your credit card, keep in mind that you do have to pay it down. In order to build credit, you need to use your card and then pay off the minimum amount. If you can pay more than the minimums, that will help improve your score.
One of the easiest ways to improve your credit score is to make your payments on time. If you can’t pay the full amount due, at least pay the minimum. If you absolutely must skip a payment, contact your credit card company. They may have relief programs in place. But, don’t make a habit of letting credit card payments fall to the wayside. The more you neglect your payments, the more your score will suffer.
Some landlords do not look at credit score but employment history instead. These landlords are like giant squids. We know they exist but it’s rare to see one out of the water. However, having a below average credit score with steady employment might not deter a landlord from renting to you.