How Canadian Credit Scoring Works

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what is a good credit score in CanadaYour credit score is a number that evaluates the information in your credit report. In Canada, a person’s credit score is determined by two main bureaus: Equifax and TransUnion. These entities collect data on your credit history, analyze your habits, and then give you a score. Along with a more fulsome credit report, they calculate a three digit number. This is your credit score. Read on to learn about what is a good credit score in Canada, why it matters, and how you can raise your credit score.

Credit Score Range in Canada

Canada has a credit score range between 300 and 900. The lower your score, the less likely you are to be approved for a credit card or loan. Finding out your credit score is simple: you can get a free credit score from Borrowell – Canada's leading online lender. Here’s a closer look at the rating ranges:

Credit Scores in Canada: At a Glance

Excellent

Good

Fair/Average

Below Average

Poor
741 - 900690 – 740660 - 689575 - 659300 - 574
-Few or no late
payments
-Regularly pay in full
-Low credit utilization
-Most payments on time
-Low credit utilization
-Some late payments
-Many lenders
-May have defaulted
-Many late or incomplete payments
-High levels of debt
-Many defaults
-Carry a lot of debt
-Use multiple lenders
-May have declared bankruptcy

What is a Good Credit Score?

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 the best personal loan interest rates. 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 puts you in the best position to be approved for many credit cards and personal 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 of being approved, but 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.

That being said, it's not impossible to get a personal loan with bad credit. You can apply with a bad credit lender — private lenders for personal loans, and there are several in Canada. For the best of the bunch, check out our article on The Best Bad Credit Loans in Canada.

The bottom line: 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.

How Can I Get My Credit Score?

Since there’s so much mystery surrounding credit scores, you might be wondering how to find yours. Luckily, you can get a free credit score check with the Canadian financial technology company Borrowell, and looking it up won’t affect your credit score.

You can also order your credit report from either (or both) of the two credit bureau websites: Equifax.ca and TransUnion.ca. However, there will be a fee to do this, so your best bet is Borrowell.

It’s worthwhile to review your credit report for errors, which can ultimately impact your score. If you do find any errors, contact the credit reporting agency and ask them to investigate.

What Affects Your Credit Score?

There are many different factors that affect your credit score in Canada. Your credit score reflects your credit history, so obviously paying your credit cards each month —in full, if possible, but failing that, a minimum payment — is crucial. But your credit history is affected by far more than your credit cards. Consider the following list of things that can affect your credit score:

  • The number of credit accounts in your name
  • Carrying high balances on cards or loans (Any credit card balance that’s above 35% of the credit limit is too high)
  • Numerous applications for credit
  • Late or missed payments
  • Applying for too many credit cards or loans within the past 12 months.
  • Having a short credit history.

Equifax and TransUnion both have different ways of calculating credit ratings, but there are some overlapping factors that matter. Let’s look at a few factors in-depth.

Payment History

The most important factor influencing your credit score is payment history. It’s kind of like a report card that grades your spending and loan/credit repayment. Your payment history details all of your consumer debt (excluding mortgages) including whether you’ve paid off, deferred, or defaulted on your debts; made late payments; whether you’ve still got debt outstanding; and whether you’ve ever filed for bankruptcy. Another factor is repayment history: the longer it takes to pay off your loans, including those from cash advance sources, the more your credit score is affected. Since creditors aren’t psychic, payment history offers one way to reasonably predict how likely you are to repay a loan, and ultimately influences their decision whether to lend you money.

Credit Utilization

“Credit utilization” refers to the amount of credit that you are using compared to the amount that is granted to you. So if you have a credit card with a $1000 credit limit, and your balance is $200 on that card, it translates to a 20% credit utilization. In general, it’s a wise idea to keep your total credit utilization (meaning across all credit products) to under 30%.

Length of Credit History

Lenders love customers with long-term credit histories showing that you’ve used credit consistently over many years. Meanwhile, a short credit history or not using an allotted credit may be red flagged, perceived by creditors as being a risk factor for defaulting on balances.

Age

Continuing with the above discussion and of particular interest to millennials, there is also a correlation between credit score and age. In general, the younger a person is, the lower their score. This is not entirely attributable to financial responsibility or lack thereof. Along with payment history and debt owed, credit score takes into account the length of your credit history, the number of applications for new credit, and the variety of credit products you’re using. These last three factors are typically tied to age.

Soft and Hard Credit Checks

Whether you’re applying for a bank loan, apartment rental, or credit card, someone is bound to ask you for a credit check at some point in your life. There are two types of checks in Canada, with the first being a “soft check.” This is when you or another person checks your credit score for non-lending purposes. Despite what you may have heard, the good news is that it doesn’t negatively impact your credit score.

However, a “hard check” can cause your credit rating to drop. It occurs every time you apply for a credit card or loan, and having too many hard checks in your credit history during a condensed time period can knock off 7-10 points. Knowing this, just be careful about applying for too many credit products at once.

Diversity of Credit

Just like smart investors diversify their investment portfolios, you should do the same in the credit world. Lenders like when your credit history shows a variety of credit types, and when you demonstrate financial responsibility with each of them.

Having No Credit History

If you’ve never borrowed money or had a credit card, you may have a blank credit report. No credit history doesn’t give the best impression to lenders, and there’s nothing proving that you’ll repay a loan on time (or at all!). It can actually be just as a bad or even worse than a bad credit history and jeopardize your chances of receiving a loan when you need it.

How to Raise Your Credit Score

Once you have your number, you can see where you fall on the scale and what options might be available to you. Unless you’re in the top 20% or so of Canadian borrowers, you likely have some room to improve. Here are some tips on how to improve your credit score in Canada:

Repay your debt

Paying your debt in full and on time is the best way to build or rebuild your score, but bear in mind that this is not limited to your credit cards. Demonstrating responsibility with your cellphone or utility bills will also have a positive effect.

Paying balances quickly will also help since high loan and credit card balances negatively affect your credit score. If you’re in the red, think about getting a balance transfer credit card with a lower interest rate. It’s one of the best ways to pay off credit card debt fast.

Minimize your credit utilization

Don’t apply for more credit than you need, and keep your debt load low in comparison to the amount of credit extended (resist the urge to max out your cards).

Keep your (healthy) credit history going

Maintaining a long credit history helps, as does the responsible use of different types of credit. Your history with a car or RRSP loan affects your score just as much as your credit card use.

Avoid unnecessary credit checks

Keep hard credit checks to a minimum. If you’re prone to “credit churning” (whereby you apply for credit cards with sign up bonuses and then cancel your membership after collecting the rewards), remember that this will likely ding your credit score. If you’re trying to improve your credit score, keep new credit applications to a minimum.

Correct outdated or wrong information

Get a free credit score check with Borrowell and look at your credit history for any errors or omissions, any open credit lines, or negative info that’s older than seven years. If you see anything wonky, get it fixed ASAP. According to Borrowell, there’s a statistical correlation between regularly monitoring your credit report and improving your score.

Keep your plastic

After paying off a credit card in full, don’t immediately cut up the card. It’s in your interest to carry your paid-off credit cards in your wallet for a while longer, just to build up a low credit utilization. If you’ve got a bad credit score, think about applying for one of the best credit cards for bad credit in Canada. It will help you get on the road to repairing your credit score.

Final Words

For those aspiring to obtain a good credit score in Canada, you’ve got to aim for 690 or higher. Luckily, there are a few simple things you can do to improve your credit score and get in the good books with creditors. With lenders reserving the best products and rates for those with the highest credit scores, it makes money sense to put a little effort into yours and build your best profile. Good luck!

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Keph Senett

Keph Senett is a Canadian freelance writer with an interest in helping people make solid choices towards debt-free living. Her work has appeared in publications including Al Jazeera America, Greedy Rates, BBC News, and The Globe & Mail.

21 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.



  17. Holly on January 26, 2018 at 12:56 am

    I had a good credit rating, I believe it was 720. Now today, I have a 615 credit rating that I just found out about 2 minutes ago. Why did it go down? I pay my bills on time. I was finally approved for a MasterCard. I am not going to max it out, I was taught that one should limit the money that they don’t have.



  18. Amy on February 18, 2018 at 2:09 pm

    Holly, same thing happened to me! After looking at my credit report from Equifax, I learned that I had 3 accounts in collections that were NOT mine!

    After about three hours worth of phone calls to Equifax, and the collection agencies listed, and 15-20 calendar days of waiting, they were removed, and my score went back up immediately.

    Might be worth pulling your credit report!



  19. […] but your scores can be damaged by any number of factors. There are many different issues that can hurt your credit, such […]



  20. Cdavis on May 21, 2019 at 10:24 am

    Having various types of credit helps, such as cards, line of credit, bank loan, mortgage, car loan, etc. This is what i have and a high score of 819. Diversity counts. Make sure you pay your bills on time. Cheers.



  21. Kevin on September 8, 2019 at 4:17 pm

    I have bad credit—like, *really* bad credit—from years of living, studying, and working in the States and being unable to pay the cards after a certain point due to a medical crisis that cost me my last U.S. job and kept me unemployed for the next 3 years. I’ve never had a credit card in Canada, though. If I apply for one now, will my U.S. credit rating affect my chances of getting a card here in Canada?



  22. Lisa Jackson on October 7, 2019 at 7:29 pm

    I’m no expert on cross-border credit ratings and if your U.S. credit rating and troubles will follow you here to Canada.

    That said, I know the best way to establish credit and improve your score is to take out a small credit account (a small loan, or low balance credit card), and make on-time payments to build history. Put a recurring expense like a Netflix subscription or cell phone bill onto the card and pay it off in full each month.

    Also, take a look at our articles on the Best Credit Cards for Bad Credit (youngandthrifty.ca/best-…it-canada/) and the Best Bad Credit Loans (youngandthrifty.ca/best-…nada-2019/). This can help re-build your credit score.



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