How Canadian Credit Scoring Works

Your credit score is a number that evaluates the information in your credit report.  You can check get actually get a free credit score from Borrowell – Canada's leading online lender.

A good credit score would indicate 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.

Credit scores in Canada are calculated and sold by two major credit bureaus: Equifax and TransUnion.  Equifax is the credit bureau that is dealing with Borrowell in order to offer their free credit score promotion. The scores range from 300 to 900. Credit scores above 800 are the best, 760 to 799 is good, the low 700s are fair, and below 699 is known as a bad credit score. Lenders place a lot of importance on credit scores during the application process because statistics show that consumers with the best 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.

What a Good Credit Score Means

How Canadian Credit Scoring Works

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 be a more intense process even with a great credit score. Not only does a good credit score improve your chances at being approved, it also lets you get the best interest rates and terms 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 that you pay much lower interest rates on all of your debt.  If you have a car loan or take out a small line of credit to do renovations, you will pay much less going forward if you have an excellent credit score.  Consequently, while not a lot of people might realize just how important your credit number is – it could potentially affect your wallet to a pretty high degree (not many folks that I know are able to go through life without ever borrowing money)!

Things That Hurt Your Credit Score

There are things you do that will bring your credit score down and hurt your ability to get approved for new credit cards, loans, and other credit-based services. Here are a few things that hurt your credit score:

  • Having too many accounts. Unfortunately, we don’t know the specific number of accounts that hurts your credit score, so keep your accounts on an as-needed basis.
  • Having high account balances. Any credit card balance that’s above 35% of the credit limit is too high.
  • Too few accounts or recently used accounts. The same way having too many accounts hurts your credit score, having too few accounts also hurts your credit.
  • Loan balances too high compared to the original loan amount. The longer it takes you to pay off your loans from, including those from cash advance sources,  the more your credit score is affected.
  • Applying for too many credit cards or loans within the past 12 months. Requesting a copy of your own credit report or credit score does not hurt your credit.
  • Having a short credit history. A credit account that hasn’t been activated for very long since.

You have the power to get and maintain a good credit score by paying your bills on time every month – even utility bills and cell phone companies that don’t report positive payments, sometimes report late payments. Paying balances quickly will help your credit score since high loan and credit card balances negatively affect your credit score. Keep your new applications to a minimum. Apply only as needed.

Ordering Your Credit Score

Though you can order your credit report online or by mail, your credit score is only available for purchase online. You can check your credit score at either (or both) of the two credit bureau websites: Equifax.ca and TransUnion.ca.

Your credit score could be affected by errors on your credit report. If you review your free credit report and find errors, you contact the credit-reporting agency and ask them to investigate the error or contact the business that listed the information and ask them to contact the credit reporting agency.

 

14 Comments

  1. Two Degrees on May 4, 2011 at 11:18 am

    I checked my credit score for the first time in January and found that my score was 741.

    My parents had invested well throughout my life, so I never got tuition loans for university. A friend told me that if I had student loans and paid them off, it might bumped up my score. Can you explain why this is?



  2. Etienne on May 4, 2011 at 8:17 pm

    Even though I have zero payments late or anything, mine is quite low at 720…
    Now I read both my equifax and transunion reports and found out I have way too many accounts. Most of them are either “closed at consumer’s request” or just unused for years and years.
    The main problem is that accounts only are removed after 7 years past the date of last activity, so even though I have cards or accounts closed/unused since 2005, they will still show up for years.
    It’s quite impossible to improve your score quickly, the easiest way is to close accounts to at least have less “available credit”. But aside from that, if you never missed a payment and have a “fair” score, you just need to be really patient 🙁



  3. SavingMentor on May 5, 2011 at 12:45 pm

    That’s an interesting point Etienne. I had never heard anyone state that closed accounts had an impact on your credit score for up to 7 years (as long as they were in good standing). But it makes sense that since they still stay on the report for 7 years that they could somehow count in some sort of “number of accounts” calculation that would affect your score.

    I sure hope they don’t put a lot of weight on closed accounts that were always in good standing throughout their lifetime.



  4. young on May 5, 2011 at 11:14 pm

    @Two Degrees- I think mine was around that figure too. I wonder if the better credit score with student loans payments shows the credit bureau that you can pay things like loans off? Did your friend pay his or her student loans off really quickly?



  5. young on May 5, 2011 at 11:16 pm

    @Etienne- I have a lot of unused accounts too (like my old Mosaic BMO Mastercard I got as a student and a Sears card that I swear was forced upon me and signed up without my consent from overzealous telemarketers). I had thought that if you CLOSED accounts (e.g. like credit cards) it makes your credit score go down?



  6. ross on May 6, 2011 at 11:17 am

    Canadian credit scoring seems to work almost exactly the same as it does in the U.S., even down to the credit bureaus. In addition to Transunion and Equifax, we also count Experian as a major bureau.

    One good tip for people in the US is that we passed a law called the FCRA Act, that gives everyone the right to check their score one time per year. Go to annualcreditreport.com (its a site set up by the 3 bureaus in response to these laws).

    Do you have something like this in Canada?



  7. Etienne on May 7, 2011 at 3:55 pm

    @ross: We have the same right, although we get the full report, you need to pay to get the actual score (i.e. number). The report allows to see errors though.

    @young: when you close them, it says “closed at customer request”. Still, it stays there for 7 years from the last activity. Basically, if you close them but you had too much credit available before, it should improve it, but if you close them and it makes your ratio higher (used $ / total available) then it’s bad. In my case, I have too much available credit so I need to close unused accounts and lower some credit limits (my aeroplan card climbed to 25 000$!!)



  8. young on May 7, 2011 at 10:25 pm

    @Etienne- Oh okay, thanks for letting me know. I think I’m going to make a couple of calls to make sure any stagnant dormant credit cards are closed then. Thanks!



  9. john on May 16, 2012 at 10:52 pm

    Im 23 I got my first credit card 2 years ago (secured) low limt 300, then 1500, I have had points where it was maxed but would pay it off at the end of month, I leave a small balance(example $50ish), then I got a canadian tire with a higher limit never maxed it, same thing run a 50ish balance. my score is at 837. I pay off it right off every 4 months ish and I give them $5 dollers extra. I wonder if i pay it right off all the time will my score improve I just like to leave a little on so they make some interest money.



  10. Teacher Man on May 17, 2012 at 7:40 am

    Hey John. I’m a little confused by why you want to voluntarily five the credit card company some interest money. The good news is that it won’t affect your credit score at all. As long as you make the minimum payment, the CC boys won’t go after your score. Of course, I don’t really recommend that.



  11. Wade on June 23, 2016 at 10:40 pm

    I am in Vancouver Canada, and I had my first cc a few years ago, now I have 2. My first one was a secured $500 TD Visa, that still reports to the credit bureaus. I thought (probably like most ppl) that if you use it and then pay it off before the due date it would build good credit! Wrong! I was surprised, but after 2 years of this, (sometimes making a smaller payment but at least my minimum before the due date) my credit went down two points!! Now mostly I would use it and pay it right off before the due date, and I didn’t have anything else hurting my credit, like inquiries or late payments or anything. So I looked into it, and researched credit and started keeping my utilization of the card/s at no more than 33% ever, and always making at least the minimum payment, but never paying it completely off, always having a little outstanding. Maybe only 2-5% though. And after 3-4 months of that, and I also signed up for equifax to take $20 a month and I could monitor my credit daily and pull my credit whenever I wanted… Anyway after that, I raised my points by over 100!!! You might think this is insane and hard to believe, but it’s 100% true.. My bank manager approached and asked me how I had raised my credit so much so fast, so I told him and he wasn’t aware of that technique of the 33% utilization limit thing that I was doing. He said nobody gets taught that stuff.. Most people think exactly like I did, you rack it or use it anyway (CC) and then pay it off before the due date.. And just continue that and don’t be late! But it doesn’t work like that. Anyways I thought I’d leave my story for anyone who is interested ?cheers!



  12. Enbee on December 2, 2016 at 12:04 am

    Hi, A personal banking rep at one of the big banks told a friend who’s trying to reestablush her credit that having a “lesser” credit card (I think they meant CapitalOne etc) would adversely affect her credit score. Never heard or read anything like that before, is this true?



  13. Kyle on December 2, 2016 at 2:20 pm

    It’s possible, but fairly unlikely Enbee. Your credit score is a compendium of many different factors – if your friend had got several credit cards in a short period of time, this could cause a negative scoring result. On the other hand, if it was just a comparison between cards I can’t see one being worse than another.



  14. Sean on January 4, 2017 at 1:31 am

    Your info is a little off. By their own standards, 699 is not a “bad” score, it is a good score. Anything over 650 is listed as “Good. 600 to 650 is “fair” and below 600 is bad. source: Trans Union webpage.



  15. Donald V Comis on August 31, 2017 at 12:15 pm

    I have fairly large lines of credit that are
    not used uless I do a major renovation or
    other large purchases. Would this be a factor on a score. I owe nothing on them.



  16. Kyle on September 1, 2017 at 12:08 pm

    It should only help your score to have unused credit available Donald.



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