When did you last apply for a credit card, mortgage, or line of credit? Do you remember hearing the word “credit score” tossed around?
Maybe your high credit score helped you score that loan.
Or your low credit score was a factor for rejection.
Lenders use credit scores to help them decide whether or not they’ll lend to you. Meaning? It’s a pretty important number — important enough for us to discuss with clients in our free credit counselling services.
But what is a credit score exactly, and why should you care? We’ll cover all that in our 2023 guide on credit scores in Canada.
What is a Credit Score?
A credit score is a number between 300 and 900 that helps lenders assess your likeliness to repay a debt. Think of it like a grade on an exam, and the exam is a lifelong history of credit repayment.
Credit scores summarize your credit behaviour in a numeric value, based on the information in your credit report. While your credit score is an easy reference, your credit report is a more comprehensive snapshot of your credit history. It documents your open credit accounts and debts, late payment history, and more.
A high credit score makes it easier for you to access credit, like mortgages, car loans, personal loans, and lines of credit.
A low credit score makes lenders wary to lend you money, making it more difficult to access credit. Still, you might get approved for a loan, albeit with a higher interest rate.
So, how high does your credit score need to be for an A+? Depends on the credit bureau you ask. Equifax deems a good credit score to be between 660 to 724. Here are some other ranges to help you assess your score:
Over 760: Excellent
725 to 759: Very good
660 to 724: Good
560 to 659: Fair
Under 560: Poor
Factors that Impact Your Credit Score
So, what powers that be determine your credit score?
Payment history (35%): “Minimum payment due.” That’s the bare minimum you need to meet to have a positive payment history. But if you miss that due date? That’s a no-no for the credit bureaus, since payment history is the heaviest weighed on your credit score. You might get away with the odd one, but if you make a habit of it? Debts in collections, repossessions, and foreclosures profoundly impact your credit score.
Credit utilization (30%): So you’re making your debt payments on time. Turns out, your credit score can still hang low if you use up too much of your available credit, aka credit utilization. Say you have $20,000 in available credit and have used up $18,000. Even if you make minimum payments, your credit utilization ratio is high, meaning you’re less attractive to credit bureaus and lenders.
Credit history (15%): Time is your friend here. The longer you’ve had access to credit, the better your credit score is — up to 15%, anyway. This makes it difficult for newcomers to access credit right away since they start fresh on the credit front.
Credit mix (10%): Diversification makes a difference. You’ll notice a slightly higher credit score if you have a healthy debt mix of a car loan, credit card, and line of credit versus if you only have credit cards.
Credit inquiries (10%): Do you find yourself applying for loans every month? Whether you’re applying to credit cards, payday loans, or even mortgages, lenders must make “hard inquiries” on your credit to inform their decision. Then there are soft inquiries, like pulling your own credit report, which does not affect your credit score.
Pro tip: Contrary to popular opinion, your credit score is not affected by soft inquiries. So you can review it as frequently as you wish without worry.
Keep in mind that everyone’s credit scenario is different. If you have a solid payment history but unfavourable credit utilization ratio, that might not mean your credit score won’t be high. Credit bureaus account for all the details in your credit report before calculating a score. Similarly, lenders will typically review your entire report before deciding on an approval decision.
Still, it’s an important factor to consider. Step one? Find out what your credit score is.
How to Get Your Credit Score
You can get your credit score online, by mail, or in person. Of course, online is the most convenient.
You can order your credit report and score from Canada’s two credit bureaus directly:
Some providers like Borrowell or Credit Karma allow you to check your score and report for free, as often as you like. Check with your bank to see if they offer free credit score viewing, too.
How to Improve Your Credit Score
If you recently ordered your credit report and found out you have a poor credit score, don’t panic.
You’re one of 11% of Canadians who consider their credit rating to be bad, or very bad. On top of that? Those numbers only account for the Canadians who actually checked their credit. About half of Canadians haven’t ever checked their credit report, and these are the ones who assume their rating is good.
Still, what are your next steps if you have a bad credit score? Improve it, of course! Here’s how:
Pay on time: Do you struggle with due dates? Set reminders and put each bill in your Google Calendar if you have to. You can even automate bill payments with your bank to ensure you're meeting your due dates. Payment history, specifically payment tardiness, is the heaviest-weighed factor on your credit score.
Correct credit bureau errors: We recommend checking your credit report at least once a year. If you notice any funny accounts or debts you don’t recognize, reach out to the credit bureau. The error could be a simple human mistake or even a financial scam weighing down your credit score.
Get overdraft protection: Ever gone into the negative on your bank account? Unfortunately, banks can sometimes report that to the credit bureaus. Overdraft protection might cost you a few bucks per month, but if you’re at risk it’s worth it to protect your credit score.
Rein in your spending: We know that life is expensive, and it’s easy to fall into spending more than you earn. One way to mitigate that is with a solid budget. Check out our Budget + Expense Tracker to stay organized.
Talk to someone: If you’re feeling overwhelmed with debt, improving your credit score might feel like an uphill battle. That’s why Credit Canada’s certified credit counsellors are here, to support Canadians like you with free debt advice.
Consider debt consolidation: Some Canadians have so much debt that they can’t come close to overcoming it. You might need some intervention here, and debt consolidation is a solid strategy to get a handle on spiraling debt.
Debt consolidation loans offer some ease to your repayment process by merging all your debts into one single loan and one single payment each month. Debt consolidation programs involve a third party or agency to negotiate a lower debt amount, often helping you save on interest fees you would have otherwise had to pay.
Improve Your Credit Score with Credit Canada
It’s funny how one three-digit number can have such a profound effect on your ability to go about your life. Whether it’s borrowing a mortgage for your home or getting that line of credit, your credit score dictates your borrowing ability and ease.
Need help improving your credit score? We can help. Credit Canada’s certified credit counsellors support Canadians through in-person, phone, and video consulting to figure out pathways to becoming debt-free. Call us today!