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Date updated: 2026-05-15

What is a Credit Score and how does it work?

TL;DR - What is a Credit Score and how does it work?

Your credit score is a three-digit number that reflects how likely you are to pay your bills on time, helping lenders quickly assess your financial reliability. A strong score can open the door to better loan approvals and lower interest rates. The two most important factors that influence your score are making payments on time and not using too much of your available credit.

Table of Contents

  1. What’s a good credit score?
  2. How is a credit score in Canada calculated?
  3. What is the difference between Credit Score and Credit Report?
  4. How to check your credit score with your TD app?
  5. How to increase your credit score?

So, what is a good credit score, anyway? Let’s start at the beginning.

According to the Government of Canada, a credit score is a 3-digit number that represents how likely a credit bureau thinks you are to pay your bills on time.1 It can be an important part of building your financial confidence and security. For example, building a good credit score could help you get approved for loans and larger purchases, like a home. You may also be able to access more competitive interest rates.

There are two main credit bureaus in Canada: Equifax and TransUnion. These are private companies that keep track of how you use your credit. They assess public records and information from lenders like banks, collection agencies and credit card issuers to determine your credit score.

What’s a good credit score?

It depends on the scoring model used. A credit score can range anywhere between 300 and 900.2 The higher your score, the better your credit rating. In Canada, according to Equifax, a good credit score is usually between 660 and 724. Here’s a quick guide to where your score may land:

  • Over 760: Excellent
  • 725-759: Very good
  • 660-724: Good
  • 560-659: Fair
  • Under 560: Poor

Your credit score helps lenders to assess your credit capacity. The higher your score, the more likely you are to get approved for loans and credit. It may also be checked when applying to rent a property or when applying for certain jobs. However, everyone’s financial situation is different, and your credit score will change over time based on your credit history and the balances you owe.

How is a credit score in Canada calculated?

There are five main factors that are evaluated when calculating a credit score3:

Payment history

Paying at least the monthly minimum on your balances and making payments on time is essential. It’s the most important factor on your credit score. Missing payments could lead to collections, repossessions, and foreclosures, which negatively impact your credit score.

Credit utilization

Using too much of your available credit can hurt your credit score. For example, using $18,000 of a $20,000 limit (90%) results in a high credit utilization ratio, making you less appealing to lenders. By comparison, using $4,000 of a $20,000 limit (20%) shows lenders that you’re using credit responsibly.

Credit history

The longer you’ve had access to credit, the more it helps your credit score. If you’re new to Canada or new to using credit, it’s normal not to have enough credit history to generate a credit score yet. Using credit responsibly over time can help you build your credit profile.

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Credit mix

Diversifying your credit can help. Having a variety of credit types, like a car loan, credit card and line of credit, can slightly improve your credit score.

Credit inquiries

Whether you’re applying for credit cards, payday loans, or even mortgages, lenders must make “hard inquiries” on your credit to inform their decision. Too many of these inquiries can lower your credit score.

What is the difference between Credit Score and Credit Report?

A credit score is a number between 300 and 900 that gives lenders a quick snapshot of your credit health and how likely you are to repay debt.

A credit report is the detailed history behind that number. Credit bureaus like Equifax and TransUnion collect information about your credit accounts, payment history, balances, and other activity. This information is used to calculate your credit score.

In short, your credit score summarizes your credit behaviour, while your credit report shows the full story.

How to check your credit score with your TD app?

The federal government says it’s important to check your credit score, so you know where you stand financially.

You can check your credit score with the TransUnion CreditView® Dashboard in the TD app. Checking in the TD app will not affect your credit score in any way. Learn more

How to increase your credit score?

The Government of Canada says that your credit score will increase if you manage credit responsibly and decrease if you have trouble managing it.

Here are some tips from the Government of Canada to help build or improve your credit score3:

  • Build credit history: Getting a credit card and using it responsibly is an easy way to establish your credit history. 
  • Pay on time: Try to pay your bills on time and in full. Maintaining a good repayment history is another way to help increase your credit score. If you can’t pay the full balance on your bill, try to meet the minimum payment.3
  • Stay within your credit limit: Avoid going over your credit limit, as it can lower your credit score in Canada. A good rule is to use no more than 30% of your total available credit.  
  • Avoid applying for too much credit:  According to the federal government, you should also avoid applying for too many loans, having too many credit cards and requesting too many credit checks in a short time frame.3 Every credit check can lower your credit score. However, you may sometimes receive pre-approved offers from lenders that don’t affect your credit score, because they’re based on information the lender already has.

And here’s an extra tip: Try to get the most out of your credit card and stay on track when it comes to paying it off to help you increase your credit score. One way to help stay on top of your payments could be to set up pre-authorized payments from your bank account to your credit card.

Overall, having a good credit score can help boost your financial confidence and security. So, congrats on taking the first step by learning how credit scores work and how you can improve yours!

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