A credit score is a three-digit number, usually ranging from 300 to 850, that assesses your credit risk – your likelihood of paying bills on time. It’s determined using your credit report, considering factors like payment history, debt amount, and credit history length.
In Canada, a credit score of 670 or above on the 300 to 850 scale is generally considered good.
While achieving a solid credit score might seem challenging, it’s essential to understand that improvement is possible at any time. That’s why you must know exactly what is a credit score and how to improve and use it to your advantage.
Thankfully, this article clarifies the concept of a good credit score, how to check it, and offers actionable strategies for boosting your credit score in Canada.
What is a Good Credit Score in Canada?
A good credit score in Canada is essential for building trust with lenders and financial institutions. While a universal standard for a good credit score doesn’t exist, certain ranges are widely recognized:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Source: equifax.com
Understanding where you stand regarding your credit profile is crucial to maintaining financial health. A credit score falling within the “fair” range indicates a good score. This means you’re seen as a low-risk borrower, increasing your chances of obtaining credit. On the other hand, if your score is below 660, it indicates a higher risk to lenders.
The beauty of a higher credit score lies in its ability to enhance your creditworthiness. As your score climbs, you become a more appealing candidate for credit, leading to better offers from lenders.
What are the Benefits of a Good Credit Score?
Maintaining a healthy credit score and ensuring timely repayments on loans and credit cards offer many advantages. A high credit score can translate to lower interest rates on loans and various credit arrangements, alongside the possibility of securing higher credit limits on your cards.
Furthermore, your credit score carries weight with lenders and credit card companies, shaping their decisions on whether to approve your loan, credit card application, or other financial offerings. Naturally, the higher your credit score, the greater your chances of obtaining approval.
Consequently, if you’re considering financing a vehicle, securing a home loan, or refinancing existing debts, a higher credit score is a significant asset. In essence, a commendable credit score simplifies borrowing. It casts you in a more favourable light among potential creditors, making you an appealing candidate for financial opportunities.
5 Major Factors that Determine a Good Credit Score
Your credit score is key to your financial opportunities, impacting your ability to secure loans, credit cards, and even housing. To help you understand how this important number is determined, we’ll break down the five major factors that significantly shape your credit score.
- Credit History: Think of your credit history as your financial track record. It reflects your relationship with credit over time. Lenders want to see that you have a history of responsible credit use. This means having an account that you’ve managed well over a period of time. Making payments on time and not exceeding your credit limits are important markers of good credit history.
- Payment History: Your credit card payment habits carry a lot of weight. Lenders pay close attention to whether you pay your bills on time. When you apply for a loan, your credit card company reports your payment history to credit bureaus. Paying your bills promptly demonstrates to lenders that you’re trustworthy and serious about handling credit responsibly. Conversely, late payments can negatively impact your creditworthiness.
- Credit Utilization: Credit utilization looks at how much debt you owe compared to your available credit. When you apply for new credit, lenders assess how much debt you currently have on your existing accounts. Keeping your credit utilization below 35% shows that you’re managing your debt sensibly, safeguarding your credit report from unnecessary strain.
- Credit Types: Diversifying your credit can be beneficial if managed properly. Instead of relying solely on one type of credit card, like a store card, having a mix of credit types can enhance your credit score. This diversity demonstrates your ability to manage different kinds of credit, making you a more reliable borrower.
- New Credit Applications: Applying for new credit too often can have repercussions. Each time you apply for credit, a credit inquiry is triggered, leaving a mark on your credit score. If you’re applying for numerous credit lines quickly, it can raise concerns among lenders about your financial stability and responsibility.
4 Practicals Tips on How to Improve Your Credit Score
Improving your credit score doesn’t have to be challenging. These four actionable tips can pave the way to a better credit standing:
1. Timely Bill Payments are Crucial
Paying your bills promptly each time can significantly enhance your credit score. Even if you have a billing dispute, don’t hold back on payments while it’s being resolved. Waiting it out only hurts your score. Also, clear out old debts; they can linger on your credit report for years, and after 180 days of non-payment, they might be reported indefinitely.
2. Mind Your Credit Card Balance
Keeping your credit card balance comfortably below the limit is key. Accumulating debt beyond your limit can negatively impact your score, especially if you’re new to credit. Be mindful of high-interest debts and avoid maxing out your credit card. Keeping balances manageable maintains a healthy debt-to-credit ratio.
3. Avoid Frequent Account Openings
While it might be tempting to open new credit accounts, doing so can lead to financial complications. Consistency is key for credit reports, so refrain from opening too many new accounts in quick succession. This practice can inadvertently suggest you’re avoiding unsettled debts, indirectly influencing your credit score. Begin with a minimal number of accounts to keep your score stable.
4. Regularly Monitor Your Credit Reports
Staying informed about your credit health is crucial. While you’re entitled to a free credit report annually from each of the three major credit agencies, fintech platforms like Borrowell, Credit Karma and Mogo offer the convenience of regular checks. These tools ensure accurate information and partner with Equifax, TransUnion, and Experian to provide free services for Canadians. They understand that strong financial health hinges on accurate credit data.
What is a Credit Score?
A credit score is a numerical expression based on a level analysis of a person’s credit files, calculated by different credit score agencies. Also, it represents the creditworthiness of an individual, determining your eligibility for loans or mortgages.
It is calculated based on various factors, including your payment history and amounts owed. It is also based on your current debt load and how long you’ve successfully managed your credit.
Thus, a positive one can translate to better borrowing rates and loan approvals. At the same time, a low score could make you vulnerable to interest rate hikes and lead to rejection of loans or credits.
How to Check Your Credit Score in Canada
There are three major national agencies in Canada: Equifax Canada, TransUnion Canada and Experian Canada. While no law requires them to provide you with a copy of your credit report, all three have set up systems in place.
Checking your credit score in Canada is now easier than ever with fintech companies that allow you to access it without charging you for the service. You can instantly check it in Canada by registering your information with Borrowell, Credit Karma and Mogo. These fintech companies will give you access to your it at no cost.
With your free credit score, you can easily monitor your credit and make any changes to help it improve. This will help you get the lowest interest rate possible when it finally comes time to apply for your mortgage or car loan.
Check your record today to know where you stand before applying for credit.
READ MORE: Borrowell vs Credit Karma vs Mogo
Final Thoughts on Good Credit Scores in Canada
Understanding what constitutes a good credit score in Canada is crucial to securing your financial future. With a good credit score of 670 or above, you open doors to better interest rates, increased borrowing power, and a world of financial opportunities.
By adhering to timely bill payments, managing credit card balances wisely, avoiding excessive account openings, and regularly monitoring your credit reports through trusted platforms like Borrowell, Credit Karma, and Mogo, you’re well on your way to achieving a stellar credit score.
So, if you’re ready to unlock the doors to better financial prospects, take action today. Start by checking your credit score, assessing your financial habits, and making informed decisions.
FAQs on Good Credit Scores in Canada
What is the Average Credit Score in Canada?
The average credit score in Canada is 660, though it varies from province to province, and once you reach that number or above, you’re likely to qualify for the products you want. So if you have less than 660, you are below average. A credit score below this number will make getting quick or low-interest loan approval nearly impossible. When applying for new credit, the higher your credit score, the lower your interest rates and monthly payments.
What is a good credit score range?
Credit scores between 660 and 724 are considered to be in a good range, 725 to 759 are very good, and 760 and above are excellent.
What is a good Equifax credit score?
Credit scores between 660 and 724 are considered good by Equifax, 725 to 759 very good, and 760 and above Excellent.
What is a good credit score to buy a house?
Credit scores of 660 or higher are required for a mortgage loan in Canada from a traditional lender.
What is the highest credit score in Canada?
A credit score between 800 and 900 is considered excellent in Canada, but few Canadians attain this level.
What is a good credit score to buy a car?
You’ll need a credit score of 661 or higher to qualify for most traditional vehicle loans.
Does paying utility bills build credit?
Utility bills generally do not reflect on a credit report until they are past due and sent to a collection company. Therefore paying your utility payments on time isn’t enough to help you improve your score.
