What’s A Good 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.1 For example, building a good credit score could help you get approved for loans and larger purchases, like a home.1 You may also be able to access more competitive interest rates.1
There are two main credit bureaus in Canada: Equifax and TransUnion.1 These are private companies that keep track of how you use your credit.1 They assess public records and information from lenders like banks, collection agencies and credit card issuers to determine your credit score.1
What’s a good credit score?
It depends on the scoring model used. In Canada, according to Equifax, a good credit score is usually between 660 to 724. If your credit score is between 725 to 759 it’s likely to be considered very good. A credit score of 760 and above is generally considered to be an excellent credit score.2 The credit score range is anywhere between 300 to 900.2 The higher your score, the better your credit rating.2
Your credit score helps lenders to assess your credit capacity.1 The higher your score, the more likely you are to get approved for loans and credit.1 It may also be checked when applying to rent a property or when applying for certain jobs.1 However, everyone’s financial situation is different and your credit score will change over time based on your credit history and the amount of debt you owe.
What’s credit history?
According to the Government of Canada, your credit history is a record of your debt repayments on credit cards, loans and lines of credit.1 Your credit history helps determine your credit score.1 That’s why it’s important to be smart about how you use and manage your credit.
How to check your credit score
How to increase your credit score
The Government of Canada states that your credit score will increase if you manage credit responsibly and decrease if you have trouble managing it.1
Here are some tips from the Government of Canada to help improve your credit score:
- Establish credit history by getting a credit card and using it for things you would buy anyway.3 You can access and view your credit history by obtaining a credit report through a credit bureau. You’re able to request a free copy of your credit report every 12 months from Equifax and Transunion with no impact on your credit score. You can order the report by phone, email and online.4
- Try to pay your bills on time and in-full in order to maintain a good repayment history and improve your score.3 If you can’t pay the full bill, aim to meet the minimum payment.3 Contact your lender if you think you’ll have trouble paying your bill.3
- Don’t apply for credit or switch credit cards too often.3 Make an effort to keep your total debt in check and don’t let small balances add up.3
And here’s a tip from us: Try to get the most out of your credit card and stay on track when it comes to paying it off. 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.
Check out this video that breaks it down in simple terms:
What’s a utilization ratio or debt-to-credit ratio?
According to Equifax, your debt-to-credit ratio, also known as your utilization ratio, is the amount of your debt compared to your credit limit.5 Your debt-to-credit ratio is important because if your ratio is high, it can indicate that you’re a higher-risk borrower.5 That’s because lenders see borrowers who use a lot of their available credit as a greater risk.5
For example, imagine you have a couple of credit cards and a line of credit with a total debt of $14,000 and a combined limit of $20,000. Your debt-to-credit ratio would be 70%.
According to the Government of Canada, a ratio of 35% or below on credit cards, loans and lines of credit is recommended.3
How to maintain your credit score
One way to maintain your credit score is to try to stay within the 35% ratio mentioned above.3 Add up all your credit limits and multiply the total by 35%. That’s the amount you should ideally try to avoid exceeding when borrowing money or using credit.3
Avoid applying for too much credit
There are some downsides to having too many credits cards. You may be tempted to use them and spend more.
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 timeframe.3 That’s because it could negatively impact your credit score too.3
Stay within your credit limit
Avoid going over your credit limit. If you go over your limit, it could lower your credit score.3
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!
1Credit Report and Score Basics. Government of Canada, May 13 2020, https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/credit-report-score-basics.html.
2What Is a Good Credit Score? Equifax Canada, www.consumer.equifax.ca/personal/education/credit-score/what-is-a-good-credit-score.
3Improving Your Credit Score. Government of Canada, 13 May 2020, www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/improve-credit-score.html.
4Ordering Your Credit Report. Government of Canada, October 3 2018, https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/order-credit-report.html.
5What Is a Debt to Credit Ratio? Equifax Canada, 6 Sept. 2019, https://www.equifax.com/personal/education/credit/score/debt-to-credit-ratio/.