Have you ever been asked to provide your credit score? If you’re anything like me, this might have caused some anxiety. Even though I consider my score very good, the thought always causes stress. Given that your credit score can have such a huge impact on your personal financial health, it’s important to score high. So what is a good credit score in Canada?
What is a credit score?
A credit score, is a number between 300 – 850 (sometimes 900) that lenders and creditors use to determine if you can repay future debt. Essentially it indicates your financial risk level. If your credit score is high, lenders are more confident you can repay your loans.
Who uses credit scores?
Creditors and lenders are the main users of your credit score. When you apply for a general loan, mortgage loan, credit card, car loan etc. your credit score will be checked. Having a higher credit score can also mean lower interest rates.
What impacts your credit score?
Your credit score is constantly changing. Typically, there’s 6 things that impact your credit score:
1) Payment history
The payment history on your credit greatly impacts your credit score. That’s why it’s so important to pay your credit cards and loans on time. Lenders and creditors want to feel confident that you’re going to be able to repay your outstanding loans.
2) Credit history
Credit history is another factor. Thats why you may want to open a credit card early on in life (note: this only benefits you if you can make payments on time). The longer you’ve been building credit, the more confidence lenders and creditors will have in you.
3) Amounts Owing
This is your debt to credit ratio. Essentially how much you owe in relation to your credit limit. If your credit cards are all maxed to their limits this will negatively impact your credit score. Why? Because chances of you repaying more credit becomes riskier if you already have a lot of debt.
4) New Credit
New credit (like a new credit card) can temporarily decline your credit score. Reason being, creditors and lenders see it as you taking on more debt. This is why opening new credit cards is not a great idea if you need to a high credit score in the short term. The longer they’re open however (granted you make payments on time) they can help your credit history.
5) Types of credit
Having a mix of credit types (i.e credit card, loans, mortgages etc.) can directly impact your score. Having too many or not having enough can negatively impact your score. On one hand, if you have a lot of debt, you may be seen as high risk and having not enough, may be seen as not having enough history.
6) Financial hardship
If you have gone through foreclosure, bankruptcy, had delinquent accounts etc. this will all negatively impact your credit score as it indicates to creditors and lenders that you are high risk.
How to get your credit score
In Canada, there are two main credit bureau’s that can provide you with your official credit score. As they use different algorithms to calculate your score, it will usually vary slightly between the two.
Errors in your credit score
I recommend doing an audit of your credit score report to make sure that the credit bureau has up to date information. Unfortunately it’s extremely common to finds errors in your credit history.
1) TransUnion
TransUnion is based in Chicago, USA and is one of the largest international credit bureaus. Many Canadians and Canadian creditors and lenders alike rely on TransUnion for accurate credit scores. TransUnion uses their VantageScore 3.0 model to calculate your credit score. It also costs $19.95 to pull your official credit report.
They are currently offering a special offer of 75% off your first month. If you need your official credit score report what I recommend doing is signing up, then discontinuing your subscription right after. That way, you get the 75% off and don’t have to continue your subscription.
Get 75% off your 1st month with TransUnion here
2) Equifax
Equifax is based in Atlanta Georgia and is another large international credit bureau. They use the Equifax Risk Score to determine your credit score. It’s also $19.95 to get your credit report.
Get your Credit Score from Equifax Here
What is a good credit score in Canada
Now for the biggest question, what is a good credit score in Canada? As a rule of thumb this chart below shows the averages ranges:
You want to aim for a credit score of 650 or higher to be in good standing. This will raise your chances of getting credit and loans in Canada. Why? As mentioned above, you will be considered less risky to creditors and lenders. The higher your credit score, the more likely you will repay your future debt.
The average Canadian’s credit score is 650. This means that the average Canadian qualifies as fair. If your score is below that don’t fret, but some work is needed to raise your score so you can qualify for more financial products.
How to raise your credit score quickly
When you have a score of less than 650 I recommend working on raising it. A couple of ways you can do this quickly are:
1) Check for credit score errors
As mentioned above, your credit score will likely contain errors. Sometimes these errors significantly impact your score. Making sure your report is up to date is an easy way to raise your score.
2) Pay your bills on time
This is one of the most important ways to raise your score. You must pay your bills on time. Put a reminder on your phone or sticky notes in your bathroom if you have to.
3) Request a credit limit raise
If you ask for a credit limit raise and are granted, then your credit to debt ratio improves which in turn improves your credit score. Just make sure you don’t put additional debt onto the credit card with the higher limit.
Final thoughts
Plain and simple, a good credit score in Canada is anything 650 and above. Under that and you likely will not be eligible for certain financial products. The higher credit score you have, the more lenders and creditors are willing to give. Also, the lower the interest rates you will be offered.
Pro Tip: Always check your credit report for errors. This is a quick and easy way to increase your credit score.
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