Are you wondering what is a good credit score? You’re not alone. This is one of the most common questions asked by new credit holders or new borrowers.
As different lenders use different scoring formulas, there’s no one-size-fits-all answer to that question.
However, a good credit score falls within a certain range, so it is essential to know yours so that you can make intelligent financial decisions.
Luckily, this article explains what a good credit score is, how to check it, and how you can increase it in Canada.
What is a Credit Score?
A credit score is a numerical expression based on a level analysis of a person’s credit files, calculated by different credit score agencies.
Also, it represents the creditworthiness of an individual, determining your eligibility for loans or mortgages.
It is calculated based on various factors, including your payment history and amounts owed. It is also based on your current debt load and how long you’ve been managing your credit successfully.
Thus, a positive one can translate to better borrowing rates and loan approvals. At the same time, a low score could make you vulnerable to interest rate hikes and lead to rejection for loans or credits.
What is a Good Credit Score in Canada?
A good credit score in Canada is one that lenders and other financial organizations consider reliable and trustworthy.
While there is no single, universal good credit score, most people consider a 660 to 724 as a good one. Also, 725 to 759 is very good, and 760 to 900 is excellent.
A critically important part of maintaining a healthy credit profile is knowing where you stand. A good credit score is one that falls within the “fair” range.
Therefore, if yours falls within the range, it means you are a low-risk borrower. This makes lenders more likely to give you credit. But, if your score is less than 660, it means you pose a high risk to your lender.
The higher your credit score, the more creditworthy you are and the better offers you’re likely to receive.
What are the Benefits of a Good Credit Score?
Taking good care of your credit score and making timely repayments on loans and credit cards has numerous benefits.
A good one can help you get lower interest rates on loans and other types of credit. It can also help you get higher credit limits on credit cards.
Also, lenders or credit card companies look at your credit score when deciding whether to approve you for a loan, credit card or other financial product. The higher your credit score, the more likely you are to get approved.
So, if you’re looking to finance a car, secure a loan for a home or refinance other types of debt, a higher credit one means more advantages to you.
In other words, having a good credit score can make borrowing easier. The higher your score, the more attractive you will be to potential creditors.
What is the Average Credit Score in Canada?
The average credit score in Canada is 660, though it varies from province to province, and once you reach that number or above, you’re likely to qualify for the products you want.
So if you have less than 660, you are below average. A credit score below this number will make it nearly impossible to get quick or low-interest loan approval.
When applying for new credit, the higher your credit score, the lower your interest rates and monthly payments.
5 Major Factors that Determine a Good Credit Score
1. Credit History
A big part of your credit score is your history with credit. This means that you need to have an established account that is in good standing over time.
When considering a potential credit applicant, a lender will look at the applicant’s credit history.
Having a good credit history means that you have made your payments on time and haven’t gone over your limit.
2. Payment History
How you pay your credit card bills is another essential factor in how your credit score is calculated.
When you apply for a loan, your credit card company will track your payment history and report to the credit bureaus based on their policies.
Thus, paying your card bills on time shows lenders that you can be trusted and, most importantly, that you take credit seriously.
Also, if you don’t pay your bill on time, this will go against you and adversely affect your loan chances.
3. Credit Utilization
Credit utilization refers to the amount of debt you have relative to your total available credit.
When you apply for a new loan or open additional credit accounts, the lender will check your credit report to see how much debt you already have on your other accounts.
This tells the lender how much you borrow as a percent of what you can borrow. The enormous total amount you owe indicates how risky it is for the lender to do business with you.
Therefore, using less than 35% of your available credits can help you maintain a low debt level on your credit reports at all times.
4. Credit Type
If you want good credit, there are several types of credit that can be beneficial when you obtain and use them correctly.
Having everything in a major credit card, such as a department store charge card, is a bad idea because if you miss a payment, that event will count against the line of credit.
Therefore, it is better to have different credit cards and lines of credit to help provide more mobility if negative events occur.
A credit mix shows lenders that you are using credit responsibly. The more types of credit you have, the more your score should increase.
5. New Credit Requests
Another critical factor in determining your score is the number of new credit requests you have made.
Opening new accounts too rapidly may indicate an inability to manage credit or other negative characteristics that lenders see as risky.
If you are actively applying for tons of different credit lines, you are most likely getting rejected or denied some. Every time this happens, you will receive a hit on your credit score.
Therefore, it is advisable to avoid applying for new credit in a short period. Opening too many new accounts at once points to potential financial problems, which affects your credit score.
How to Check Your Credit Score in Canada
In Canada, there are three major national agencies: Equifax Canada, TransUnion Canada and Experian Canada.
While there is no law requiring them to provide you with a copy of your credit report, all three have set up systems in place.
Checking your credit score in Canada is now easier than ever with fintech companies that allow you to access without charging you for the service.
You can instantly check it in Canada by registering your information with Borrowell, Credit Karma and Mogo. These fintech companies will give you access to your it at no cost.
With your free credit score, you can easily monitor your credit and make any changes to help it improve.
This will help you get the lowest interest rate possible when it finally comes time to apply for your mortgage or car loan.
Check your record today to know where you stand before applying for credit.
READ MORE: Borrowell vs. Credit Karma vs. Mogo
4 Practicals Tips on How to Improve Your Credit Score
The following tips below can help you improve your credit score:
1. Pay Your Bills on Time, Every Time
You can improve your credit score by paying on time, every time, or paying off your debts early.
Therefore, it is essential to ensure that you pay all of your bills on time, every time, regardless of whether you think you’ve been billed correctly.
If you’re disputing a bill, don’t skip making payments until the dispute is resolved. That will only hurt your credit score.
Also, be sure to pay off any old debts because they can still show up on your credit report for years. And if they’re unpaid for over 180 days, they can be reported to the credit bureaus indefinitely.
2. Keep Your Credit Card Balance Below the Limit
It’s essential to stay on top of your credit card balance so that you don’t start racking up more debt than you can handle.
A debt that exceeds your credit limit may have an adverse effect on your credit score, especially if you’re new to credit.
So it’s essential to keep this in mind when racking up any high-interest debts. This way, you won’t have a high debt-to-credit ratio.
Avoid overheating your credit score. Keep your credit card balances below the limit listed on your credit card.
3. Don’t Open Many Accounts
Opening new credit cards can lead to a variety of different financial problems, which is why it is highly suggested that you do not open new credit cards one after another.
Credit-scoring companies seek consistency in credit reports, so don’t open too many new accounts in a short time frame.
Avoid opening many accounts in a short period. Opening too many accounts in a short time shows that you are running away from other unpaid debts. This will indirectly affect your credit score.
Maximize your credit score by starting with the minimum number of accounts. New accounts can cause credit score fluctuations for several months after opening.
4. Check Your Credit Reports Regularly
Although you are eligible to obtain free credit reports from each of the three national credit agencies once a year.
Fintech companies like Borrowell, Credit Karma, and Mogo can perform regular checks on your credit report to make sure you are looking at accurate information.
They understand the importance of your financial health, which is why they have partnered with Equifax, TransUnion, and Experian to offer a free service for Canadians.
Your credit score is probably the most essential factor in determining your access to various types of loans.
Therefore, it’s essential to know yours because it will be the deciding factor if you’re approved for a loan or not.
Knowing your credit score is your right as a Canadian citizen, and it helps you better manage your finances and avoid any hefty interest charges later.
It’s also wise to monitor your credit report at least once a year to catch any mistakes before they become serious problems.
Hopefully, now you know what a good credit score is, how to check it and ways to improve it.
READ MORE: 15 Best Credit Cards in Canada
What is a good Equifax credit score?
Credit scores between 660 and 724 are considered good by Equifax, 725 to 759 very good, and 760 and above Excellent.
What credit score is needed for a mortgage in Canada?
Credit scores of 660 or higher are required for a mortgage loan in Canada from a traditional lender.
What is the highest credit score in Canada?
A credit score between 800 and 900 is considered excellent in Canada, but not many Canadians attain this level.
What credit score is needed to buy a car?
To qualify for most traditional vehicle loans, you’ll need a credit score of 661 or higher.
Does paying utility bills build credit?
Utility bills, in general, do not reflect on a credit report until they are past due and sent to a collection company. Therefore paying your utility payments on time isn’t enough to help you improve your score.