Planning for a mortgage? Then you must know your credit score. Borrowers often encounter some challenges in Canada, hearing the terms like credit report, credit monitoring, credit score quite often. They are even advised to get a free credit report, use third-party apps and websites that provide credit score, and turn to Equifax and TransUnion credit score to determine how worthy they are when it comes to money. Most people are aware of the importance of having a higher credit score; however, there are still many misconceptions around those three-digit numbers, their meaning, factors that impact them, and the reasons behind varying credit scores provided by different providers. This article presents everything you need to know about credit score in Canada.
What is a Credit Score?
A credit score is a 3-digit number that helps lenders examine a potential borrower’s credit trustworthiness to pay back the money or in other words, the risk they may run of not paying back their loans. Canadians usually are not allowed to borrow money or obtain a credit of any kind unless having a solid credit score. Equifax and TransUnion, Canada’s two national credit bureaus, calculate credit scores, and prepare credit reports based on the information obtained about the borrowers from their lenders.
Canada’s Credit Score Range: What is a good credit score?
In Canada, the credit score ranges between 300 and 900. The lesser your score is, the less likely you are to get approval for a credit card or loan. If you succeed to qualify for a credit card or loan even having a low score, your interest rate is going to be higher than the average rate.
On the other hand, the higher your credit score is, the more likely you are to obtain approval for your credit card or loan as well as the lower interest rate. Having a good credit score (660 and above) helps you rent/purchase a home, get approved for low-premium insurance coverage, change your car, plan vacations and get a better plan for your utilities. Keep in mind the following credit score ranges:
- Excellent: 741+
- Good: 690+
- Average: 660+
- Below average: 575+
- Poor: 300+
The Most Important Factors That Affects Your Credit Score
There are a lot of factors that affect a credit score positively or negatively. Equifax and TransUnion both have little different formulas for defining scores, but there are certain shared considerations evaluated above all else: These factors are taken into consideration to calculate your credit score.
- Payment History – 35%
- Credit Utilization – 30%
- Length of Credit History – 15%
- Soft and Hard Credit Checks – 10%
- Diversity of Credit – 10%
How to Improve Your Credit Score?
Here are some quick tips on how to increase your credit score:
- Pay Your debts installments and bills Consistently and On-Time
- Use your credit cards often and pay off your credit cards debt as fast as possible. If you can't pay off your credit card balance, try to reduce your Credit Utilization and stay below 30% of your total credit limit.
- Avoid cancelling your old credit cards.
- Avoid Credit Inquiries Unless Undeniably Necessary
- Correct Misrepresentation and Update Old Information on a credit report
How to check your Credit Score and a Credit Report?
In Canada, there are two credit bureaus: Equifax and TransUnion that administer a free credit report, which is a complete report displaying how much one owes, when they opened accounts and includes personal information like name, date of birth, location, social insurance number and more.
Also, a good thing is that checking your credit report and credit score does not impact your credit. That’s only a myth. Checking your credit report is considered a “soft hit”. A “hard hit” influences your credit though. These inquiries include credit card applications, rental applications, etc.