Want to know if your credit score is good or not? Get to know what are Canada’s credit score and how to tell if you are eligible for a certain credit card or loans!

A decent credit score is the key to unlocking a world of financial opportunities. It influences everything from loan approvals and interest rates to insurance and even rental applications. But with so much information out there, it can be confusing to understand what is the best one and how important it is. This blog post will break down everything you need to know about credit scores in Canada, including what a good score is, how it’s calculated, and steps you can take to improve yours.

This score is the main factor when it comes to your elegibility for benefits, once it is based on your income and how you manage it among all of your expenses. So with no further ado, let’s delve into this topic before you apply for a credit card or a loan.

What is a credit score?

It is a three-digit number, ranging from 300 to 900, that reflects your creditworthiness. It’s essentially a report card on your borrowing habits, compiled by credit bureaus based on your credit reports. The higher your score, the better your credit history appears to lenders, increasing your chances of qualifying for loans and favorable interest rates.

What is considered a good credit score in Canada?

The definition of a “good” credit score can vary slightly depending on the credit reporting agency and potential lender and its own standards as to what scores are acceptable. However, here is a general guideline:

• Excellent (760-900): this is the top tier, indicating a history of responsible credit management. Borrowers with exceptional scores will have the easiest time securing loans and the best interest rates.
• Very Good (725-759): this score range signifies a strong track record of credit usage. You’ll likely qualify for favorable loan terms and competitive interest rates.
• Good (660-724): borrowers in this range are seen as reliable and will be approved for most loans, though interest rates may not be the most attractive.
• Fair (560-659): this score falls below the national average and may lead to higher interest rates or loan denials.
• Poor (300-559): scores in this range indicate a history of credit problems and will make it difficult to qualify for loans or even credit cards.

How is the credit score calculated?

Several factors contribute to the score, with the most significant being:

• Payment History (35%): this is the biggest factor, reflecting your on-time payments for credit cards, loans, and other debts. Late payments significantly impact your score;
• Credit Utilization Ratio (30%): this measures how much credit you’re using compared to your available limit. Ideally, you should keep your credit utilization ratio below 35%;
• Credit History Length (15%): the longer your credit history is, the better. Having a well-established credit history with a mix of credit products (credit cards, loans) positively impacts your score;
• New Credit Inquiries (10%): frequent applications for new credit cards or loans can negatively affect your score in the short term.

How can I improve my credit score?

Building and maintaining a a good score takes time and effort. Here are some actionable steps you can take:

• Make On-Time Payments: this is the single most important factor. Set up automatic payments to avoid missed due dates;
• Pay Down Debt: reduce your credit card balances and other debts to lower your credit utilization ratio;
• Don’t Apply for Too Much Credit: space out credit applications and avoid applying for unnecessary credit cards;
• Become an Authorized User: being added as an authorized user on someone else’s credit card with a good payment history can improve your score;
• Get a Credit Report and Dispute Errors: regularly check your credit report for errors and dispute any inaccuracies that could be bringing down your score. You can access your credit report for free twice a year from Equifax and TransUnion, the two major credit bureaus in Canada.

Extra tips!

It’s important to focus on building a healthy credit history overall. This means developing responsible borrowing habits, understanding different credit products, and using them wisely. Here are some additional tips:

• Start Early: if you’re new to credit, consider getting a secured credit card, which requires a security deposit but helps establish your credit history;
• Don’t Max Out Your Credit Cards: avoid using more than 30% of your available credit limit on any card;
• Diversify Your Credit Mix: having a mix of credit products like credit cards and installment loans (e.g., car loans) can positively impact your score.