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in Canada, any score above 670 is considered a good credit score.
Your score says a lot about how you manage your finances. Lenders use it to determine if you’re a reliable borrower. It also affects the type of credit you’re approved for and even what kind of purchases you can make. Sai Blackbyrn, CEO of CoachFoundation, summed it up as “a detailed financial summary of your credit health and history.”
You may be surprised to learn how much this can impact your life, especially if you’re like most Canadians who carry some level of debt throughout their life.
This guide will thoroughly examine what is considered a good score, how it is calculated, factors that affect it, and how you can improve your finances with a good rating.
• What is a Credit Score?
• Difference Between Credit Rating and Credit Score
• Credit Score Range in Canada
• How Are Credit Scores Calculated?
• Benefits of a Good Credit Score
• What is the Average Canadian Credit Score?
• Guide to Making Credit Scores Work for You in Canada
• Improve Your Finances with a Good Credit Score
A credit score is a three-digit score that sums up your habits as a credit user. Your score shows how well you manage credit and whether or not you’re a risky borrower. You get points if you manage credit responsibly and lose them if you have trouble paying your debts.
Noman Chaudhry with Results United told us, “A credit report contains details about your borrowing history, which helps companies that you might want to borrow money from decide whether to trust you when it comes time for repayment.”
A good score gives you access to a greater variety of loans that do not require collateral with favourable terms and lower interest rates. However, having a good score will not automatically get you approved for credit products.
A credit score is a three-digit number that indicates your creditworthiness based on your entire credit history. A credit rating, on the other hand, is an individual rating of every item on your credit history. It ranges from 1 to 9 and indicates the type of credit products you use and if you make timely payments.
For instance, a 1 credit rating means that payments were made within 30 days of the due date. If your rating is 9, it means that you never made a payment, or you have a debt repayment proposal with the bank.
The credit score range in Canada is 300 to 900. Scores are categorized as follows:
Borrowers in this range may have a high credit utilization ratio, have defaulted on several loans or declared bankruptcy. It’s important to note that bankruptcy stays on your credit report for up to seven years. This score range makes it difficult for lenders to approve standard loans and credit cards.
Borrowers with a fair credit score are approved for personal loans with higher interest rates which can be costly over time. They may be not eligible for lucrative credit products with rewards and cashback offers.
People in this score range may have defaulted on a loan or made several late payments. While they’re likely to be offered high-interest loans, they at least qualify for some worthwhile credit cards.
Individuals with a very good score are financially responsible. They have a low credit utilization score and hardly make late payments. They qualify for many upper-tier credit cards with cashback, rewards, and low-interest loans.
Consumers with an excellent score of 800+ pay off their balances in full and on time. They have zero or few late payments, and their credit utilization score is low across their lines of credit. Lenders provide quick approval for loans, high credit card and loan limits, and premium credit card benefits.
Borrowers with an excellent score have an all-access pass to credit products in Canada.
Several factors are taken into consideration when calculating your overall score.
Your payment history tells lenders whether or not you pay your debts on time, defer them, and if you have payments in collections. Your payment history includes all debt, liens, and bankruptcy filings. It does not include mortgages. More recent payments have a greater impact on your score than older ones. Mehvish with AG FinTax shared; “Credit reports contain a ton of personal information along with credit history, credit inquiries and public records. These records and information are reported by lenders and creditors.”
Credit utilization is the amount of credit you use relative to the amount allocated to you. For instance, if you have a $2,000 credit card limit and use $1,500, your credit utilization is 25%. A credit utilization of less than 30% across all products may increase your score.
Lenders prefer lending to people with a long credit history. They like to see that you have used your credit wisely and consistently. People with a non-existent or short credit history are considered risky borrowers who may default on loans.
This shows lenders the type of credit products you have used in the past. A more diverse credit history is good for your score as it means you’re flexible with different credit products.
A soft check occurs when someone checks your credit scores for non-lending purposes and doesn’t impact it. A hard check, for non-lending purposes and doesn’t impact it. A hard check, on the other hand, occurs when you make a loan application. Too many hard checks over a short period can be an indication of financial difficulty or intensive credit shopping.
Naomi Stone, Development Manager Room Service 360, summed credit scores up for us. “In a nutshell, a credit report is a detailed account of a person's credit history that is created by a credit agency.”
Besides increasing the chances of your loan approval, here are some benefits of maintaining a good score:
• More negotiating power: With a high score you can negotiate for better interest rates and terms on credit facilities. If you have a low score, lenders are unlikely to bulge to your terms.
• Higher borrowing capacity: Lenders will be willing to let you borrow more money since you have demonstrated that you can pay back on time. As a result, you can make significant investments with a higher loan limit.
• No collateral requirements: Some lenders will require a deposit to secure your loan. By providing collateral, the lender has an asset to back up the loan if you miss payments. When you have good credit, lenders are more willing to offer you unsecured loans.
• Higher chances for credit card approval: Having a good credit score doesn’t guarantee loan approval. However, your chances of being approved are greater when you apply for a loan with a financial institution. Lenders assess different factors of your application to determine your loan eligibility.
• Better insurance rates: Most insurance companies use credit-based insurance scores to evaluate consumers and determine how much premium to charge for a homeowner or car insurance policy. With a good score, you can pay less for insurance than other applicants with lower credit scores.
According to Transunion, the average credit score in Canada is about 650.
The average score should not be confused with a good credit score. The average score is simply the sum of the credit scores of all Canadians divided by the total population of creditworthy individuals (18+ years). It tends to fluctuate according to the economic trends in the country.
According to Equifax, Canadians aged 65+ years have an average score of 750 or higher. Younger Canadian citizens have lower scores because it takes time to build a credit history and develop good financial habits.
Here are the average scores for age brackets in Canada.
Ages 18-24
The 18-24 age group includes millennials, and these have an average score of 692. This score has improved by 11 points from the last decade, yet it remains lower than the other age groups.
However, it doesn’t mean that young people are irresponsible borrowers or credit card owners since other factors affect the overall score. For instance, the length of your credit history affects about 15% of your final number. And, since most millennials have a short credit history, their score is relatively low.
Age 25-35
This age group has an average score of 697. Many people are starting a family at this age, looking for a house, buying cars, and urgently need loans to facilitate this lifestyle. You can get favourable loan terms with this score.
Ages 36-45
The 36-45 age group has an average credit score of 710. Consumers have a higher score at this age because they have had more than 10 years of credit history. They may have a mix of different types of credit lines, such as credit cards, mortgages, and car loans, which have helped them to improve their creditworthiness.
Ages 46-55
The score of this age group is 718. Since most people in this group are about to retire, many have made significant efforts to pay off their debts. With 35% of your payment history affecting your final score, most lenders are comfortable giving members of this age group a huge loan.
Ages 55+
This age group has an average credit score of above 737. This is a high score because most people have paid off their mortgages and car loans at this age. In fact, many people start selling their homes at this age because they are heading into retirement.
To pursue a comfortable lifestyle in Canada, you’ll need to achieve different credit score limits for various situations. We’ll examine some of the absolute necessities and suitable credit scores to attain them, and how to maintain a solid credit score while doing it.
The minimum score needed for your mortgage to be approved is 640, especially if you’re borrowing from commercial banks. However, you can still get a mortgage with a score of up to 620. This depends on your lender and other factors that affect you as the borrower, including income and amount of debt.
Additionally, your loan amount can be compared with your credit score to see if you’re liable for a mortgage. For instance, lenders may view a higher loan amount as riskier if you have a low score.
However, you may have a poor score and wish to own a home. A loan for this purpose may be approved by direct lenders, but their interest rates will likely be higher than that of conventional lenders. It is recommended that you work on improving your credit score to avoid spending more.
If you’re looking to rent an apartment, you should have a score of at least 620 or higher. It’s one of the things your landlord will look at before approving your application. This will be used to determine if you’ll pay rent in full and on time.
A bad score can make apartment hunting stressful as it tells potential landlords you may be late with rent payments.
If you have a score of above 660, you can easily qualify for a loan at any car dealership. You may experience some setbacks if your score falls between 560 and 659.
Although banks are strict and prefer higher scores, you can still get a car loan with a score below 600 from trusted licensed money lenders.
Equifax considers a score above 670 as good. Lenders will offer higher loan limits with better incentives.
A TransUnion credit score of 650 or higher is a good score for Canadians. Aim to maintain this score for the best chances of loan approval with good interest rates.
You can start working towards good credit and building the financial future you want today. Begin by developing and maintaining proper financial habits like keeping your expenses within your income range and paying your debts on time.
If you are still working to build your credit score up and would like to access a quick short-term loans, look no further than iCash.
You can still get a loan even with poor credit score. We don’t ask for any documentation and you’ll get your money in minutes after the approval!
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