What is a Good Credit Score in Canada?

What’s a Good Credit Score in Canada?

Canada has two credit reporting agencies, each with its own rating system.

Equifax states the range of a good credit score is between 660 to 724.

If your credit score is between 725 to 759, it is considered very good.

Above a score of 760 is excellent.

TransUnion states the range of a good credit score is between 720 and 780.

A score between 781 and 850 is considered excellent.

How is a Credit Score Determined?

Both credit reporting agencies look at certain factors.

These help them evaluate your creditworthiness and your ability to handle credit.

1. Payment history: 35%

Unsurprisingly, how you handle your debt payments has the most significant weight on your credit score.

Making timely payments is a good indication you handle credit wisely.

One late payment may not drastically affect your score, however multiple late payments can eventually lower your score.

If you miss two payments in a row, the credit reporting agencies will undoubtedly take notice. 

2. Credit utilization: 30%

Credit utilization measures the ratio between your available credit and what you actually use.

For example, your credit card may have a $1,000 limit, but you carry a balance of around $800 each month.

Even though you pay the bill when it is due, creditors also consider your credit utilization ratio.

In this case, you’re regularly using 80 percent of your available credit.

The credit reporting agencies may see this as a sign that you are taking on too much debt.

Luckily, you can also alter this ratio in your favour.

You could apply for a credit limit increase on your credit card to $2,500 (even if you’re not going to use it).

You can continue spending the $800 monthly, but now your credit utilization ratio is only 32 percent.

Having a lower credit utilization score can improve your credit score.

Lady with very good credit score using her low interest credit card

3. Credit history: 15%

All lenders like to see a long history of responsible credit management.

As a result, it is essential to start building your credit history as soon as possible.

Fortunately, your credit history doesn’t just include debts such as personal loans, mortgages, and credit cards.

It may also encompass payments on a cellphone plan, an internet connection, and utilities, providing the accounts are in your name.

If you have none of these, you may be able to get a no-fee credit card.

Use it sparingly, pay your bill in full each month, and always pay on time. 

4. Recent credit activity: 10%

Regrettably, many people don’t understand that applying for multiple new credit lines in a short period isn’t a good idea.

Lenders usually run a “hard” inquiry on your credit file.

If your credit file shows multiple inquiries within a short period, it may suggest greater credit risk.

Consequently, the credit reporting agencies lower your credit score each time a “hard” inquiry is made.

Exceptions exist if you are rate shopping for a loan or mortgage over a short period.

Credit reporting agencies treat these multiple inquiries as a single hard inquiry.

Luckily, your recent credit activity only affects a small percentage of your credit score.

However, a credit score reduction of between five and ten points for each hard inquiry can be detrimental to those with few credit accounts or short credit history.

5. Credit mix: 10%

The final percentage of your credit score is based on the diversity of your credit products.

A diverse credit mix indicates you can handle many forms of debt wisely.

The four principal types of credit are revolving debt (credit card or line of credit), installment loan (car or personal loan), mortgage, and open accounts.

Open accounts include your monthly payment on your cellphone plan or utilities.

Remember, credit mix plays a minor role in your credit score.

It is possible to attain an excellent credit score without utilizing all four credit types.

Don’t Forget!

Minor credit score fluctuations are expected as the credit reporting agencies continually adjust your score to reflect new information.

However, when you see a significant unexplained change in your credit score, definitely investigate it immediately. It could be an indication of identity theft or a significant reporting error.

Benefits of a Good Credit Score in Canada

1. Lower Interest Rates

Undoubtedly, a good credit score gives you access to lower interest rates whether you’re applying for a credit card, loan, or mortgage.

While a slight reduction in the interest rate you pay may not seem like much, the cumulative effect is profound.

It can save you thousands of dollars over the lifetime of the debt.

According to the Government of Canada, a fixed-rate, 5-year term $200,000 mortgage with a 4% interest rate will cost you $37,230.24 in interest over five years.

If you obtain the mortgage at 3%, you’d only pay $27,738.67.

That’s a difference of $9,491.57 within just five years.

2. Higher Credit Limits

Creditors assign credit limits based on your credit score and repayment ability.

They are more likely to increase your borrowing capacity when you repay promptly.

You’ll have more credit available if you need it for an emergency or a significant purchase. 

3. Favourable Credit Checks

More organizations than ever use credit to evaluate whether they want to interact with you.

Whether you’re buying a cellphone, renting an apartment, or applying for a job, a good credit score can help you. 

A landlord, employer, or retailer is more likely to deal with a less risky client than a person with questionable dependability.

4. Lower Insurance Premiums

Yes, your credit score can affect your insurance premiums in some provinces and territories.

Insurers can use it to develop your insurance risk score.

When you have a good credit score, you will probably pay less for insurance, even if you have a similar driving history to those with lower credit scores.

5. No Security Deposit

Poor credit often triggers hefty deposits from service providers such as a cellphone, utility, or internet provider.

Either that or they won’t approve you at all. 

Those with good credit often sidestep deposits.

They usually qualify for contracts, and they may get discounts and perks.

Frequently Asked Questions

  • Does my credit score matter in Canada?
  • Can credit scores be increased?

Charlene Royston has written extensively for the private, public, and non-profit sectors for over ten years. Her experience working with a trust company led to a special interest in personal finance, including mortgages, investments, and retirement options. By simplifying the complex, she hopes to empower others to make more informed decisions.