Your credit score has a large impact on your financial future when you apply for credit.
When you’re shopping for loans and comparing lenders, it’s important to understand your credit score and how it compares to the average Canadian’s.
Credit Scores in Canada Explained
There are 2 major credit bureaus in Canada:
- Equifax
- TransUnion
In Canada, personal credit scores range from 300 to 900, and 650 is the average, according to TransUnion.
TransUnion
While 650 is the average TransUnion credit score across Canada, averages then vary widely by province and age group.
TransUnion Canada provides less information publicly than Equifax.
Their site is vague and refuses to provide a definitive range.
However, banks they work with do have a specific set of score ranges.
A “good” TransUnion credit score, according to RBC, falls between 790 and 832.
If you fall into this category or the one above it, you can expect consistent approval for credit if you meet the lender’s other requirements.
Equifax
Equifax Canada considers a credit score of 725 to 759 to be “good”.
Scores from 760 to the maximum score of 900 are considered “excellent”.
According to Equifax Canada, you can expect to get “decent” interest rates with good credit scores.
However, the company suggests that it is worth the effort to work your way up to an “excellent” rating.
With an excellent Equifax credit score, they suggest you are “almost guaranteed” approval for any loans you apply for, so long as you meet any other requirements, such as income and debt-to-income ratios.
How To Improve Your Credit Score
1. Order A Credit Report
You can get a free credit report from both of the major credit reporting bureaus.
They each offer a quick, free credit report on their websites.
Your credit report will provide a detailed explanation of your credit score.
It will go over all the transactions that led to that score.
You can then understand what is holding your credit score back.
It will always take time, budgeting, and discipline to raise your credit score.
But that process is always easier when you know exactly what is holding your score back.
Another way checking your credit score can help is by discovering errors.
Credit bureaus aren’t perfect.
They sometimes make mistakes, and you can demand a review of a specific charge for free.
If you identify a mistake, report it, and it is investigated and found to be a mistake, it will be removed from your report.
This can result in an immediate increase in your credit score.
Checking your credit report can also help you reveal instances of fraud.
If you find any items on your report which you did not authorize, report them to the credit bureau immediately.
This outcome is often the result of identity theft.
If you’re the victim of identity theft, contact both your credit bureau and credit card provider immediately.
They will correct any fraudulent charges and secure your account so that the fraudster cannot continue to steal from you.
2. Upfront Repayments
A lot of the time, the solution to a low credit score is long-term.
It takes consistent, timely repayments of borrowed money to get your credit score as high as possible.
However, some large, short-term repayments can produce faster results as they will reduce your credit utilization, which can reflect in a higher score.
Like correcting mistakes or reporting fraudulent actions on a credit report, making large repayments can have a faster effect.
3. Fewer Hard Credit Checks
Getting a free credit report requires a soft pull of your credit score, which won’t reduce your score.
However, some actions require a “hard” credit pull.
Hard pulls will affect your credit score in only a slight way.
But repeated hard inquiries over a short period will have a more noticeable impact.
- Credit card applications.
- Rent applications.
- Certain job applications.
The “soft” pulls on your credit score will appear on your credit reports as well.
However, they are only visible to you and they do not affect your credit score at all.
4. Diversify Your Credit Sources
Having just one credit card and making timely, full repayments will increase your credit score – to a point.
However, utilizing only a few types of credit isn’t as effective at increasing your score as having a few different types of credit accounts.
If you responsibly utilize multiple types of credit at the same time, your credit score will rise faster.
For example, instead of having one credit card, you can try to mix in:
- Two credit cards
- A car loan
- A mortgage
- A line of credit
5. Give Your Accounts Time
Opening too many credit accounts in a short time does not help your credit score.
In some cases, it will even lower it a little bit.
Having a credit account open for a long time will help your credit score rise faster.
Having older accounts where you made repayments on time and in full is a faster way to increase your score.
For these reasons, it’s important to remember that when you transfer an older account into a new account, the new account will be treated as a brand new credit.
6. Use Credit Well
Last (but certainly not least), use your credit well.
Using a diverse range of credit accounts wisely, responsibly, and for a long time is the surest way to increase your score over time.
How can you do this?
- Don’t go over your credit limit.
- Try to only use 35% or less of your available credit.
- Never repay late.
- Don’t apply for too much credit.
