Obviously, the higher the score, the more attractive you are to creditors – it’s a sign of financial responsibility and that you’re less likely to default on your loan repayments. A good credit score indicates that you’ve been responsible with your credit accounts and have paid on time. A bad credit score reveals the opposite: that you haven’t paid your accounts on time or that you’ve had to file bankruptcy to deal with your debt. Here’s how the credit ratings are broken down:
- Excellent (741 to 900): You’re a credit superstar! The financial doors will be wide open for you: expect rapid approval for credit card and loan applications, the lowest interest rates, high credit and loan limits, and access to premium credit card benefits.
- Good (690-740): Looking good! Although your score could use a boost, you’ll still enjoy the best financial products and perks, and it’s unlikely that you’ll have trouble obtaining most credit products and loans.
- Fair/Average (660-689): This is a decent credit score that won’t hold you back too much. The lowest interest rates may not be available to you, but you can improve this credit score.
- Below Average (575-659): You’ve got some work to do. If you fall into this range, you’ll likely encounter higher interest rates for lines of credit as well as difficulty getting the best rewards credit cards.
- Poor (300-574): If you’re in this range, start doing damage control on your credit history pronto. It’s going to be quite a challenge to get credit or a loan.
In general, a rating above 690 is considered a good credit score in Canada, and is reserved for borrowers who make most of their payments on time and in full, and don’t carry high levels of debt. If you’ve got a credit score of 750 or so, you’re in excellent shape.
Why Is a Good Credit Score Important?
Credit score is very important! It’s used by lenders to assess the amount of risk they face in extending credit to you. Your credit score can affect:
- Getting a credit card. The higher your score, the better your lending options become.
- Renting a home. Believe it or not, landlords are allowed by law to ask for your credit history.
- Buying a home. Not only will a good credit score entice lenders, but it can also help you get a lower interest rate on your mortgage.
- Qualifying for a loan. The better your credit score, the lower an interest rate you can negotiate.
- Getting a job. Some jobs in Canada require applicants to pass a credit check.
Lenders place a lot of importance on credit scores during the credit application process because research shows that consumers with the highest scores are the least likely to default on their credit cards and loans. On the other hand, delinquency rates are very high with borrowers with credit scores below 600.
A good credit score put you in the best position to be approved for many credit cards and loans without having to go through a rigorous application process. Of course, mortgage and auto loan applications will still be a fairly intense process, even with a great credit score. But not only does having a good credit score improve your chances at being approved, it also lets you negotiate the best terms and interest rates on the loans you’re approved for. You may even have more access to instant approval loans and credit cards.
Not only that, but a good credit score can mean paying much lower interest rates on your existing debt. For instance, if you have a car loan or take out a small line of credit to do home renovations, you will pay much less going forward if you have an excellent credit score.
Few people realize just how important your credit number is. With all these benefits plus the promise of better credit options at lower rates, having a healthy credit score is a worthy goal. It could potentially affect your wallet big time.