In Canada, credit scores range from 300 (just getting started) up to 900 points, which is the best score. According to TransUnion, 650 is the magic middle number – a score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit.

Lenders who pull your credit bureau file may see a slightly different number than you see when you pull your own file.  This is due to the fact that each creditor applies a specific set of risk rules, giving and taking points for different purposes or preferences. This proprietary method of scoring will make a difference in the final calculation. The score you pull for yourself is calculated using an algorithm created for consumers that approximates these different formulas, and should still be in the same numerical range as the lenders’ scores.

Order your credit report from both credit reporting agencies in Canada – Equifax and TransUnion – at least once per year for free (when requested by mail, fax, telephone, or in person), and you can pay to see your credit score if you choose.

How can a low credit rating affect my life?

Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered  – the reason for this is you are considered more of a credit risk.

2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

What information is used to calculate my credit score, and what factors will lower my score?

If you have tried looking on the consumer reporting agencies’ (CRAs, also know as Credit Bureaus) websites, you have seen they provide VERY little information as to how your credit score is calculated. They believe this information is proprietary and therefore their “secret”. They do, however, provide a list of the main factors which affect your credit score:

1. Payment History
Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
TransUnion says: “A good record of on-time payments will help boost your credit score.”

2. Delinquencies
Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high”
TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections”

3. Balance-to-Limit Ratio
Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
TransUnion says: “Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.”

Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.(Funny how that works)

4. Recent Inquiries
Equifax says: “Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why.”
TransUnion says: “Avoid excessive inquiries. When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.” 

Sometimes, people talk about your credit. What they mean is your credit history. Your credit history describes how you use money:

• How many credit cards do you have?
• How many loans do you have?
• Do you pay your bills on time?

If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards. 

Companies also collect information about how you pay your bills. They put this information in one place: your credit report.

What is a credit report?

Your credit report is a summary of your credit history. It lists:

• your name, address, and Social Security number
• your credit cards
• your loans
• how much money you owe
• if you pay your bills on time or late

Why do I have a credit report?

Businesses want to know about you before they lend you money. Would you want to lend money to someone who pays bills on time? Or to someone who always pays late?

Businesses look at your credit report to learn about you. They decide if they want to lend you money, or give you a credit card. Sometimes, employers look at your credit report when you apply for a job. Cell phone companies and insurance companies look at your credit report, too.

Who makes my credit report?

A company called a credit reporting company collects your information. There are three big credit reporting companies:

• TransUnion
• Equifax
• Experian

These companies write and keep a report about you.

Can I see my credit report?

You can get a free copy of your credit report every year. That means one copy from each of the three companies that writes your reports.

The law says you can get your free credit reports if you:

• call Annual Credit Report at 1-877-322-8228 or
• go to AnnualCreditReport.com

Someone might say you can get a free report at another website. They probably are not telling the truth.

What is a credit score?

A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it. 

A high credit score means you have good credit. A low credit score means you have bad credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850.

Do I need to get my credit score?

It is very important to know what is in your credit report. But a credit score is a number that matches your credit history. If you know your history is good, your score will be good. You can get your credit report for free.

It costs money to find out your credit score. Sometimes a company might say the score is free. But if you look closely, you might find that you signed up for a service that checks your credit for you. Those services charge you every month.

Before you pay any money, ask yourself if you need to see your credit score. It might be interesting. But is it worth paying money for? 

1. APPLY FOR A SECURED CREDIT CARD

If you’re building your credit score from scratch, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit.

You’ll use the card like any other credit card: Buy things, make a payment on or before the due date, incur interest if you don’t pay your balance in full. You’ll receive your deposit back when you close the account.

NerdWallet regularly reviews and ranks secured credit card options.

Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to qualify for a card without a deposit.

Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card — a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports to all three credit bureaus, Equifax, Experian and TransUnion.

2. APPLY FOR A CREDIT-BUILDER LOAN OR A SECURED LOAN

A credit-builder loan is exactly what it sounds like — its sole purpose is to help people build credit.

Typically, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. It’s a forced savings program of sorts, and your payments are reported to credit bureaus. These loans are most often offered by credit unions or community banks; at least one lender offers them online.

Another option: If you have money on deposit in a bank or credit union, see about a secured loan for credit-building. With these, the collateral is money in your account or certificate of deposit. The interest rate is typically a bit higher than the interest you’re earning on the account, but it may be significantly lower than your other options.

3. GET A CO-SIGNER

It’s also possible to get a loan or an unsecured credit card using a co-signer. But be sure that you and the co-signer understand that the co-signer is on the hook for the full amount owed if you don’t pay. (See “What You Need to Know About Co-Signing.”)

4. BECOME AN AUTHORIZED USER ON SOMEONE ELSE’S CREDIT CARD

A family member or significant other may be willing to add you as an authorized user on his or her card. Doing so adds that card’s payment history to your credit files, so you’ll want a primary user who has a long history of paying on time.

You don’t have to use — or even possess — the credit card at all in order to benefit from being an authorized user.

Find out whether the card issuer reports authorized user activity to the credit bureaus.

Ask the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to make sure — otherwise, your credit-building efforts may be wasted.

You should come to an agreement on whether and how you’ll use the card before you’re added as an authorized user, and be prepared to pay your share if that’s the deal you strike.

5. GET CREDIT FOR THE BILLS YOU PAY

Rent-reporting services such as Rental Kharma and RentTrack take a bill you are already paying and put it on your credit report, helping to build a positive history of on-time payments. Not every credit score takes these payments into account, but some do, and that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders.

Experian Boost offers a way to have your cell phone and utility bills reflected in your credit report with that credit bureau. Note that the effect is limited only to your credit report with Experian — and any credit scores calculated on it.

Let’s start with the simple answer: You can check your credit score however often you want to. The common myth that checking frequently negatively impacts your score is just that, a myth. However, just because you can check your credit score whenever your want doesn’t mean that you always should, or, will need to. This simple guide will quickly help determine when and how checking your credit score is right for you.

Understanding Your Credit Score?

In order to understand your credit score, first you have to understand your credit report. A credit report is a record of how you manage your money. These reports contain a history of balances, payments, accounts, inquiries and other pieces of personal information that lenders use to evaluate whether or not to extend your credit. If you have a credit card or a loan, you have a credit report. Credit scores are calculated from the data contained in your credit report. Generally, scores range between 300 and 850. Typically, the higher the number, the better the score. Both credit reports and credit scores are

In order to understand your credit score, first you have to understand your credit report. A credit report is a record of how you manage your money. These reports contain a history of balances, payments, accounts, inquiries and other pieces of personal information that lenders use to evaluate whether or not to extend your credit. If you have a credit card or a loan, you have a credit report. Credit scores are calculated from the data contained in your credit report. Generally, scores range between 300 and 850. Typically, the higher the number, the better the score. Both credit reports and credit scores are important tools when it comes to managing personal finances but it’s not always clear how your score is calculated. See the chart below for an explanation of the components that may make up your score.

When to Check Credit Score?

Deciding when to check your credit score depends on your comfort level. For some, checking annually is sufficient. However, many prefer checking their credit scores monthly or even weekly. It’s important to remember that you can check your credit score as much as you’d like without impacting your score. In fact, tracking your progress may give you more insight into what’s affecting your score. Be careful to avoid focusing too much on day-to-day changes and instead identify overall trends. Some situations in which you may want to check your score more frequently can include: Deciding when to check your credit score depends on your comfort level. For some, checking annually is sufficient. However, many prefer checking their credit scores monthly or even weekly. It’s important to remember that you can check your credit score as much as you’d like without impacting your score. In fact, tracking your progress may give you more insight into what’s affecting your score. Be careful to avoid focusing too much on day-to-day changes and instead identify overall trends. Some situations in which you may want to check your score more frequently can include:

• Opening a new credit card.
• Applying for a loan.
• Starting a mortgage.
• Searching for a new job.
• Building or rebuilding credit.
• Protecting against identity theft.

When Not to Check Credit Score?

Even when you’re in good standing, it’s important to routinely check and ensure that the good credit you’ve established remains stable. If your credit score is on the lower end, don’t ignore it. However, it is not always necessary to check your credit score daily. Checking too much can cause anxiety. Small or daily changes are normal and should not be a cause for concern. 

How to Check Credit Score?

There are many ways to check your credit score. By law, you are entitled to a free credit report from all three major credit reporting agencies once a year, including TransUnion, Equifax and Experian. Additionally, some monitoring services allow you unlimited access to your credit information year-round. These services could help you spot inaccuracies, potential fraud and more on your credit report.

Checking your credit score can be easy and stress free with the right tools and online monitoring services.

Sometimes, people talk about your credit. What they mean is your credit history. Your credit history describes how you use money:

• How many credit cards do you have?
• How many loans do you have?
• Do you pay your bills on time?

If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards. 

Companies also collect information about how you pay your bills. They put this information in one place: your credit report.

What is a credit report?

Your credit report is a summary of your credit history. It lists:

• your name, address, and Social Security number
• your credit cards
• your loans
• how much money you owe
• if you pay your bills on time or late

Why do I have a credit report?

Businesses want to know about you before they lend you money. Would you want to lend money to someone who pays bills on time? Or to someone who always pays late?

Businesses look at your credit report to learn about you. They decide if they want to lend you money, or give you a credit card. Sometimes, employers look at your credit report when you apply for a job. Cell phone companies and insurance companies look at your credit report, too.

Who makes my credit report?

A company called a credit reporting company collects your information. There are three big credit reporting companies:

• TransUnion
• Equifax
• Experian

These companies write and keep a report about you.

Can I see my credit report?

You can get a free copy of your credit report every year. That means one copy from each of the three companies that writes your reports.

The law says you can get your free credit reports if you:

• call Annual Credit Report at 1-877-322-8228 or
• go to AnnualCreditReport.com

Someone might say you can get a free report at another website. They probably are not telling the truth.

What is a credit score?

A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it. 

A high credit score means you have good credit. A low credit score means you have bad credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850.

Do I need to get my credit score?

It is very important to know what is in your credit report. But a credit score is a number that matches your credit history. If you know your history is good, your score will be good. You can get your credit report for free.

It costs money to find out your credit score. Sometimes a company might say the score is free. But if you look closely, you might find that you signed up for a service that checks your credit for you. Those services charge you every month.

Before you pay any money, ask yourself if you need to see your credit score. It might be interesting. But is it worth paying money for? 

A big influence on your credit score is credit utilization — the percentage of your credit limit that you are currently using. That scoring factor is one reason your credit score could drop a little after you pay off debt. Having low credit utilization (30% or less) is good; having no credit utilization may be harmful to your score.

Credit utilization is one reason your credit score could drop a little after you pay off your debt.

Some of the other factors that affect your credit score also could come into play. Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score. That’s because it typically results in fewer accounts. (That’s not a reason not to do it! Don’t stretch out a loan and pay more in interest just to save some credit score points.)

Age of your credit accounts, whether you’ve recently applied for credit and what kinds of credit you have also can affect your score. Here’s a breakdown of the factors that affect your credit scores in order of importance:

How to pay off debt and help your credit score

If you focus on credit card debt first, it can help your budget (cards tend to have higher interest rates than installment loans) and your score too (if you lower your credit utilization).

Credit utilization is calculated both on a per-card and overall basis. If you have any credit cards that are charged up to anywhere close to their limits, make it a priority to lower your balance(s) to no more than 30% of your limit — and lower is better.

Here are other habits to keep in mind:

• Pay on time, every time. Late payments can seriously damage credit.
• Keep credit cards open. That is, unless you have a compelling reason for closing them, such as an annual fee or poor customer service. When you close an account, it can reduce your average account age. It also cuts your available credit, which sends utilization up.
• Use credit lightly. If you no longer love the card, consider putting a small, recurring charge on it, and putting it on autopay so that the issuer won’t close the card because of inactivity.

How do I keep my credit score from dropping?

Once you’ve gotten your balances to zero, here’s how to guard your credit.

Make it easier to pay on time. Set up reminders to pay bills. You can set up calendar reminders, or get emails or text alerts from most issuers.

Watch for credit report errors. Any attempt to build your credit will be fruitless if the data going into your scores is wrong.

You can get free credit report information two ways: Some personal finance websites, including NerdWallet, offer report information on demand. And once a year you’re entitled to a free report directly from each of the three credit bureaus.

Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered  – the reason for this is you are considered more of a credit risk.

2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

What information is used to calculate my credit score, and what factors will lower my score?

If you have tried looking on the consumer reporting agencies’ (CRAs, also know as Credit Bureaus) websites, you have seen they provide VERY little information as to how your credit score is calculated. They believe this information is proprietary and therefore their “secret”. They do, however, provide a list of the main factors which affect your credit score:

1. Payment History
Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
TransUnion says: “A good record of on-time payments will help boost your credit score.”

2. Delinquencies
Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high”
TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections”

3. Balance-to-Limit Ratio
Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
TransUnion says: “Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.”

Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.(Funny how that works)

4. Recent Inquiries
Equifax says: “Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why.”
TransUnion says: “Avoid excessive inquiries. When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.” 

Also of concern is that inquiries for non-credit purposes (such as utility companies and car rentals), will cause your credit score to drop without adding points for having credit in good standing, as with a credit card that you pay off every month. So be careful to only apply for credit you really need.

5. Length/history of Accounts
Equifax says: A “common negative score factor… [is the] length of time accounts has been established is too short”
TransUnion says: An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.”

Having a longer history on your credit accounts earns you more points, so avoid closing your accounts if you may need them in the future. A good credit history is built over time – sorry, but there is no quick fix for this one.

6. Variety of Credit Accounts
TransUnion says: “A healthy credit profile has a balanced mix of credit accounts and loans.”

Having a mix of credit products (credit card, retail store card, line of credit, car loan, etc) will procure more points on your file than having only one type of credit, such as only credit cards.

7. Too many accounts
Having a lot credit accounts, especially if many of them carry balances, is another warning sign of financial distress, so if the Credit Bureaus think you have too many, they will deduct points.

Your credit scores are an important aspect of your financial profile.

They may be used to determine some of the most important financial factors in your life, such as whether or not you’ll be able to lease a vehicle, qualify for a mortgage or even land that cool new job.

And considering 71 percent of Canadian families carry debt in some form (think mortgages, car loans, lines of credit, personal loans or student debt), good credit health should be a part of your current and future plans.

High, low, positive, negative – there’s more to your scores than you might think. And depending on where your numbers fall, your lending and credit options will vary. So what is a good credit score? What about a great one? Let’s take a look at the numbers.

How your credit scores are set

Canadian credit scores are officially calculated by two major credit bureaus: Equifax and TransUnion.

They use the information in your credit file to calculate your scores. Factors that are used to calculate your scores include your payment history, how much debt you have and how long you’ve been using credit.

Pro Tip: You can view sample credit scores summaries from each bureau (see Equifax here and TransUnion here) to get a sense of what to expect.

What’s in a number?

In Canada, your credit scores generally range from 300 to 900. The higher the score, the better. High scores may indicate that you’re less likely to default on your repayments if you take out a loan.

Below you’ll see a general breakdown of credit score ranges and what each range means in terms of your general ability to qualify for lending or credit requests, such as a loan or mortgage.

Note that the ranges can vary slightly depending on the provider, but these are the credit score ranges you’ll see on Credit Karma. The best way to know where your scores stand is to check your credit report:

● 800 to 900: Congratulations! You have excellent credit. Keep reaching for the stars.

● 720 to 799: You have very good credit! You should expect to have a variety of credit choices to choose from, so continue your healthy financial habits.

● 650 to 719: This is considered good to lenders. You may not qualify for the lowest interest rates available, but keep your credit history strong to help build your credit health.

● 600 to 649: This is fair credit. History of debt repayment will be important to demonstrate your solid sense of financial responsibility.

● 300 to 599: Your credit needs some work. Keep reading for some improvement suggestions below.

How to go from good to great (or bad to good)

To borrow from Leo Tolstoy, all great credit scores are alike, but all bad credit scores are bad in their own way. That is, ideal credit scores are built on a similar set of healthy financial habits, but your scores can be damaged by any number of factors. There are many different issues that can hurt your credit, such as:

● Late or missed payments.
● Too many (or too few) open credit accounts.
● High credit card balances.
● High balances on loans.
● Too many credit applications.

The first step toward improving your credit health is avoiding getting trapped in the highs and lows of managing your credit.

Heather Battison, vice president of TransUnion Canada explains how consistency is key: “The most important factor for building and maintaining your scores is to pay your bills on time and in full each month. This activity demonstrates your ability to responsibly manage credit and can positively impact your credit scores.”

It’s also key to remember that your payment history isn’t just about paying your credit card bill. “It also includes things like your cellphone bill,” says Trevor Gillis, associate vice president of account management at TD Credit Cards.

Gillis says building good credit scores is “based on using your credit card responsibly, which means making at least the required monthly minimum payment (if you can’t pay off the balance in full), making your payments by the payment due date and keeping your credit card utilization low.”

Beware of third-party companies that claim they can quickly boost your scores. According to the Office of Consumer Affairs, only your creditors are able to alter the information on your credit file. When it comes to building good credit, there are no shortcuts.

Here’s the good-to-great news: Improving your credit health isn’t only achievable, but also the steps involved can help you establish an overall healthy financial life. Read our tips for everyday ways you can improve your credit health.

Bottom line

Help keep your credit scores as healthy as possible by reviewing your credit reports regularly to ensure they’re accurate. Making the decision to apply for a loan or credit card is a big deal – don’t let surprise scores get in the way of it.

There are ways to check your credit scores directly from TransUnion and Equifax. However, you’ll either be waiting for snail mail delivery (with the added risk of loss or theft in transit), or paying a fee for one-time online access (or a recurring cost for continued access).

Credit Karma gives you free online access to your credit score and report from TransUnion any time. Score!

In most states, if the debt is yours, the amount is correct, and the debt collector is entitled to collect, the collector can continue to ask you to pay the debt. If you are sued, you may have a defense to the lawsuit due to the age of the debt.

In most states, the debt itself does not expire or disappear until you pay it. Under the Fair Credit Reporting Act, debts can appear on your credit report generally for seven years and in a few cases, longer than that.

Under state laws, if you are sued about a debt, and the debt is too old, you may have a defense to the lawsuit. These state laws are called “statutes of limitation.” Most statutes of limitations fall in the three-to-six year range, although in some jurisdictions they may extend for longer depending on the type of debt.

Statutes of limitation may vary depending on the:

• Type of debt
• State where you live
• State law named in your credit agreement.

The statute of limitations may also be affected by terms in the contract with your creditor and, if you’ve moved, by laws in the state where you are sued. You may want to consult with a lawyer to learn how this period is calculated and when the period may have started with respect to your debt.

In some states, a partial payment on an old account may restart the time period during which you can be sued. Similarly, in some states, sending a written statement acknowledging that you owe an old debt may restart the time period during which you can be sued.

If a debt collector sues over a debt that has gone unpaid for longer than the statute of limitations period, you have a defense to the lawsuit. If you are sued, and you think the statute of limitations has passed, you may want to consult an attorney. It is a violation of the Fair Debt Collection Practice Act for a debt collector to sue you or threaten to sue you if it knows the statute of limitations has passed.

The CFPB has prepared sample letters that a you could use to respond to a debt collector who is trying to collect a debt. The letters include tips on how to use them. The sample letters may help you to get information, including information about the age of the debt.  The letters may also help you set limits or stop any further communication, or exercise some of your rights. Always keep a copy of your letter for your records.

How Are Medical Collections Different?

Until recently, medical collections were treated the same as all other collections.

However, FICO updated their scoring in 2014 to treat medical collections differently. Medical collections now carry less weight when your credit score is calculated.

Again, this doesn’t mean a medical collection won’t affect your ability to get a loan. Lenders don’t just look at your credit score to make their loan decisions.

They usually pull your entire credit report and notice your past negative items. This, in turn, will affect your approval as well as the interest rate.

This is especially true when you’re applying for a mortgage loan.

You know your credit score is important, but what exactly does that three-digit number mean when it comes to securing a car loan? In this post, we’ll explain what your credit score means and how it’s calculated.

How do credit scores work in Canada?

In Canada, credit scores range from 900 points (the highest score) down to 300 points. According to TransUnion, a score above 650 will likely qualify you for a standard loan, while a score under 650 will likely bring difficulty in receiving new credit.

What is a good credit score in Canada?

A credit score of 680 or above is generally considered good. 780 or above is considered to be excellent, while 900 is perfect. Most credit scores fall between 620 and 679. Higher scores indicate better credit decisions and can make lenders more confident that you will repay your future debts as agreed.

How to check your credit report in Canada

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You can get a free copy of your credit report by mail in two to three weeks once you have provided your identification and some basic information. Be sure to check with both bureaus.
If you need a credit report sooner you can get one online from both bureaus for a fee of less than $20. Keep in mind that your number might differ slightly between companies because of their unique algorithms.

What your credit score means

Now that you have your credit report, you need to decipher your score and figure out where you land on the creditworthiness scale. We’ll start at the top of the range and work our way down:

780+: Excellent credit. You can access the best interest rates on the market and will typically be approved for a loan.
779-720: Very good credit. Your credit is near perfect and you will enjoy very good interest rates.
719-680: Good credit. You will have little to no trouble getting approved for financing.
679-620: Average credit. The majority of borrowers fall in this range in Canada. You will have slightly higher interest rates than someone with a higher number.
619-580: Poor credit. If you land in this range, you’re what lenders deem “high risk.” You might have a hard time getting a loan and will have high interest rates.
579-500: Very poor credit. You will rarely be approved for financing,
300-500: Terrible credit. If you have a score of less than 500 you have bad credit and it will be very difficult to get approved for any kind of loan. You should work on improving your credit.
That range probably looks intimidating, especially if you fall on the low end of the scale. But, the good news is that it’s possible to improve your credit score with a little work and some good advice.

How is credit score calculated in Canada?

Your credit score is calculated through six main categories and is representative of how well you manage your credit responsibilities.

FACTORS AFFECTING CREDIT SCORE IN CANADA

There are six main factors that affect the calculation of your credit score. These are the areas that you should focus on if you’re interested in improving your credit score.

1. Payment History: This reflects how frequently you pay your debts or bills on time and it is the biggest thing that affects your credit score. If you want to improve your number, your main priority should be paying your bills on time.
2. Used Credit vs. Available Credit: This is the second largest contributor to your score and it refers to the amount you owe compared to your credit limit. It’s a good idea to avoid running your balance up to your limit, as that can harm your score.
3. Credit History: Because good credit is built over time, how long you’ve had credit plays a role in your score. Lenders want to know that you can handle credit accounts over a period of time.
4. Diversity: Lenders also want to know that your can handle a mix of different kinds of credit at once, such as credit cards, loans and mortgages. The more diverse your credit, the higher your score.
5. Public Records: If you’ve claimed bankruptcy in the past or have had prior collection issues, these will be factored into your score.
6. Inquiries: Your credit score takes a small and temporary hit each time a lender accesses your file; however, your score will drop if you apply for a bunch of new credit in a short period of time. This does not apply to pre-approvals or personal credit report requests.

How to improve your credit score

With so many different things affecting your credit score, tackling your credit situation might seem like a daunting task. The good news is that your low score doesn’t have to be looming over you forever because you have the power to improve your credit score.