Simply put, your credit score is a three-digit number that reflects your financial health.
It is a quick reference tool that helps lenders, creditors, businesses, and banks assess their willingness to lend you money.
As such, it is an important part of your financial identity and has far-reaching consequences.
How Are Credit Scores Calculated?
Every consumer in Canada has a credit score that is based on information in their credit report.
This credit report is a record of all your credit-related transactions as an adult.
It combines information such as:
- How long you’ve had credit.
- If you any carry credit card balances.
- If you regularly miss debt payments.
- The amount of your outstanding debts.
- The number of recent credit applications you’ve made.
- The type of credit you use.
- If you’ve ever dealt with a debt collection agency.
- If you have any record of insolvency, consumer proposals or bankruptcy.
This information is compiled by entities known as credit bureaus and turned into a single credit score.
It’s important to note that it does not take into account credit information from outside of Canada.
What’s A Good Credit Score?
Credit scores range from 300 to 900 and are split into categories:
- 300-599: Poor Credit
- 600-649: Fair Credit
- 650-719: Good Credit
- 720-799: Very Good Credit
- 800-900: Excellent Credit
The average credit score in Canada is around 650.
If you have a score lower than 600, you will likely struggle when applying for a loan.
How Does My Credit Score Affect My Life?
As your credit score is used as a litmus test of your financial health, a low score can mean you face any of the following hurdles when applying for a loan:
- Higher interest rates.
- Shorter loan terms.
- More difficulty getting loan approvals.
- More paperwork requirements.
- Longer application processing times.
- Larger down payment requirements.
Items that will be affected by your credit score include:
- Mortgages
- Car loans
- Credit cards
- Installment loans
- Personal loans
- Retail loans
- Home equity loans
- Emergency loans
- Rental agreements
However, there are a few aspects of your financial life that are not usually affected by your credit score.
These include:
- Insurance rates
- Utility rates
- Employment
- “No credit check” loans
- Payday loans
How Do I Find Out My Credit Score?
There are many ways to find out your credit score.
As credit bureaus are in charge of calculating your credit score, they are an obvious place to start.
Canada has two main credit bureaus – Equifax and TransUnion – and you can access your full credit report for free, by mail, from either.
However, both organizations also offer instant credit score access, for a fee, online.
TransUnion allows you to access your credit report online for free once a month.
In addition, there are numerous online third-party providers that will help you find out your credit score for free, very quickly.
This includes companies like Borrowell, Credit Karma and Mogo.
Does Checking My Credit Score Affect It?
Many people are worried that checking their credit score will negatively impact it; however, this is not quite the case.
Anyone can (and should) regularly check their personal credit score at any time, without any effect.
In addition, what are known as “soft” credit checks can also be run without any effect on your score.
Soft checks are usually done by entities looking to understand your financial position, but not for the purposes of lending you money (e.g. landlords, insurers, etc.)
It is only if potential creditors check your credit score as a first step in approving a loan that your score may be affected.
This is known as a “hard” credit check and usually results in a temporary dip in your score (as it indicates you’re seeking to take out a new loan.)
It’s important to note that companies cannot access your credit report without your permission – which is usually included as part of loan applications.
This is true across the country, with the exception of Nova Scotia, PEI and Saskatchewan, where your written consent is not required, but companies are bound to inform you if they are checking your credit.
Personal vs. Business Credit Scores
A last note on the ins and outs of credit scores in Canada: there is a difference between personal credit scores – for individual consumers – and business credit scores.
A business credit score works on all the same principles as a personal credit score, but it reflects a business’s financial profile rather than any one individual’s.
This is important for those seeking business loans, commercial mortgages, and so on.
