Sandra MacGregor
Beth Buczynski
Your credit score is a financial barometer, and the way it reads can have a significant impact on your life and goals.
Financial institutions use credit scores to help decide whether to allow you to borrow money. Products with minimum credit score requirements include mortgages, personal loans, credit cards, and car loans. Landlords may use your credit score to decide if they should rent you an apartment. It’s even possible that potential employers will look up your credit score to get a sense of how financially responsible you are.
A good credit score starts at 660
A credit score is a three-digit number that falls somewhere between 300 and 900. In Canada, scores above 660 are generally considered “good.” The higher your number, the more likely potential lenders will view you as a responsible borrower.
Credit score ranges
Though each credit reporting agency and potential lender will have its own standards as to what credit scores are acceptable, the credit score ranges below represent what’s typical:
- Scores from 760 to 900 are generally rated excellent or exceptional.
- Scores from 725 to 759 are generally rated very good.
- Scores from 660 to 724 are generally rated good.
- Scores from 560 to 659 are generally rated fair.
- Scores from 300-559 are generally rated poor.
Ideally, you’d work towards getting the highest score possible, but a credit score of at least 660 generally makes you eligible to apply for a variety of loans and credit cards.
How is a credit score calculated?
In Canada, there are two main credit bureaus — Equifax and TransUnion — that are responsible for calculating individuals’ credit scores, using models provided by companies like FICO and VantageScore.
The bureaus collect data about your financial activity (known as your credit report) and then distil that information into a credit score based on key factors.
Credit bureaus because they don’t openly disclose the specific formulas they use in their calculations, and they may use different calculations or weight criteria differently, meaning your Equifax score may look different than your TransUnion score.
Payment history
Your payment history is the most crucial element, accounting for around 35% of your credit score. Payment history is a record of all your current and recent debts (including credit cards, installment loans and lines of credit), and whether you made your payments on time. If not, it shows how late you were, if you missed payments entirely or if an account went to collections. This negative data stays on your payment history record for years, so always making your payments on time and in full is the best way to keep up a good payment history.
Credit utilization
Credit utilization, which accounts for around 30% of your credit score, measures what percentage of your total available credit you’re using at any given time. So, if the borrowing limits on all your credit cards and lines of credit total $50,000, and you have outstanding balances of $25,000 on that available credit, your credit utilization ratio is 50%. In general, experts recommend you keep your credit utilization ratio under 35%.
Credit history
Credit history accounts for around 15% of your score. This is the length of time you’ve had your various credit accounts open. The longer your credit history the better, because creditors want to see that you have a history of handling debt responsibly.
Public records and/or credit mix
This category accounts for around 10% of your score. Equifax appears to put more emphasis on information from public records, including whether you have a history of bankruptcy or overdue accounts being sent to collection agencies. TransUnion, on the other hand, appears to more carefully consider the different types of credit you use, looking for a good mix of revolving credit accounts (such as credit cards and lines of credit) as well as installment loans (such as student loans or a mortgage).
Credit inquiries
The number of credit inquires you’ve had within a certain period of time accounts for around 10% of your score. When you inquire about a loan or apply for a new credit card, a “hard inquiry” (also known as a hard pull) is recorded on your account. Too many hard pulls can be problematic, as they may indicate to potential creditors that you’re experiencing financial difficulty and need access to more funds. “Soft pulls,” such as when you look up your credit score, do not affect your credit score.
Frequently asked questions about good credit scores
You can check your credit score by contacting either of the Canadian credit bureaus, Equifax and TransUnion. Equifax provides credit scores for free when requested online or via mail. TransUnion requires a paid subscription to access its credit scores, unless you live in Quebec. Other companies, like Borrowell and ClearScore, will allow you to check your Equifax or TransUnion credit scores for free, if you sign up for an account.
As of April 2023, the average credit score in Canada was 762, according to the Fair Issac Corporation, or FICO.
Your credit score tells potential lenders whether you’re creditworthy. If you have a high score, you’ll be deemed creditworthy, which is just another way of saying you’re a good credit risk because you’re more likely to make good on your debts.
Your credit score is a crucial consideration for potential creditors; however, it isn’t the only thing that matters. Additional factors include your income, whether you have any collateral (a home or other asset, for example) to secure a loan, how much other debt you’re carrying and if you have stable employment (versus being self-employed or a gig worker).
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