In Canada, the credit score ranges from 300 to 900. A good credit score is 600 and above, however banking prefer at least 620. Anything under 600 will give you a hard time qualifying for new credit products. If you do, you'll not have the best interest rate.

What Is a Credit Score?

A credit score is a number that companies use to try and predict how likely it is that you will pay your bills on time. It is an estimate of how “reliable” you are as a debtor.

The higher your credit score is, the better. High credit scores tell lenders that you are extremely good about paying your bills on time and are a “safe” investment for lending money to. Meanwhile, low credit scores tell lenders that you’re a “high-risk” proposition, so they’ll be less likely to want to work with you.

Scores above 700 will indicate to lenders that you are a lower risk borrower and will lead to better loan terms.

Having a good credit score is crucial for various financial activities, such as getting approved for loans, mortgages, renting apartments, and obtaining new credit cards.

Additionally, you should know that Canada has two credit reporting agencies. They are Equifax and TransUnion. It is good practice to keep up with your credit report and know what's on it and when other companies check it.

It is true that each credit check from other companies hurts your credit score, but when you check it yourself through your banking app it doesn't hurt your score.

To improve your credit score, focus on consistent on-time payments, maintaining a low credit utilization rate, having a long credit history, and a diverse mix of credit types. Remember, rebuilding credit takes time and effort, and while some services claim to “fix” your credit for a fee, be cautious of such offers as they cannot remove legitimate negative events from your credit history.

Why Does Good Credit Matter?

Many people go for years without knowing if they have a good credit score or not.

The quick answer is that most people do not look at it on a daily basis, but your credit score is critical.

Getting Approved for a Loan or Mortgage

Your credit score will play a big role with how the lender treats your application. It can be a determining factor on if you are approved and how good of an interest rate you get.

Generally speaking, if you’re looking to get a mortgage in Canada, you’ll want a credit score of 680 or more for the best interest rates. Below a credit score of 620, you may face difficulty in finding a lender.

Even if you have a low credit score, you may still qualify for a mortgage, but you may still end up paying more. Someone will a good score my get a mortgage of 4.5%. But someone with a bad score may get 5%. This is thousands of dollars in interest of the course of the loan.

Renting a home

Landlords will want to know that they can trust you to pay your rent on time. So, they will check your credit score to see how reliable you are. If your score is too low, they may deny your rental application in favor of someone with a better track record.

Alternatively, a landlord might ask a tenant with poor credit for more rent up front. Instead of asking for a deposit for just the first and last month, the landlord might ask for four months’ rent all at once to limit their risk of losing out on rent payments.

Credit Cards

If you have good credit, credit card companies will want to entice you to open an account with them. So, they’re more likely to offer low interest rates and higher spending ceilings if you have a good credit score.

These are just a few examples of situations where having a good credit score could make a major difference in your life.

Myths about Credit Score

There is a lot of misinformation that can make it tough when trying to get information about credit scores. Here’s a short list of myths:

• Only One Credit Score. This is false. Each credit bureau will use its own scoring algorithms to measure your score — and some bureaus may be missing information that could positively or negatively impact your score. Your credit score with TransUnion may be 800 but 760 with Equifax.
• Credit inquiries reduce your score. Yes, checking your credit history is logged on your file as an “inquiry,” not all inquiries will hurt your credit score. Typically, it’s the inquiries that are part of you actively seeking new lines of credit that will affect your credit score calculation. Even then, it generally takes a lot of inquiries to have a significant negative impact on your score.
• Debt Consolidation will ruin my credit score. Joining a debt consolidation program (DCP) does not mean that your credit will be permanently ruined. It may initially cause a drop, but it isn’t permanent. You can rebuild your credit with consistently paying your debts on time.
• I Can Pay to Fix My Credit. There are a lot of companies that might advertise that they can fix your credit score for a fee. However, a company cannot just remove the legitimate negative events on your credit history (if there are erroneous entries in your history, then those can be removed). Be wary of scam artists that offer to “fix” it if you just pay them some money to process the paperwork.

How to Get a Good Credit Score

1. Debt Payment History. How often you make payments on time versus missing payments on your outstanding debts.
2. Credit Utilization Rate. A measure of how much credit you have available vs how much you’ve used. For example, if you have $50,000 in credit and have used $25,000 of that limit, your utilization rate would be 50%.
3. Length/Age of Your Credit History. How long you’ve held credit. Generally speaking, the longer your credit history, the better.
4. Credit Mix. The diversity of the credit you have between installment loans (such as auto loans), revolving credit (i.e. credit cards), and mortgages.
5. Number of Inquiries. A measure of how frequently you’ve applied for different kinds of credit. Numerous inquiries in a short time frame can indicate that you have money problems.

Credit bureaus may weigh each of the above credit history items differently when calculating your score, but the top two factors are generally debt/bill payment history and credit utilization rate, in that order.

So, the best way to build a good credit score would be to make consistent payments on a variety of debts and to keep your credit utilization rate as low as possible. As for “age of credit history,” that’s something that can only be built up with time. By keeping to a tight budget and not overextending yourself, you may find that you’ve entered a good credit score range before you know it!

Need Help Dealing with Debt?

Even the best budgeters and most successful people can easily find themselves falling into debt through no fault of their own. Whether it’s because of a sudden job loss, injury or illness, or a thousand other situations, misfortune can put the best of us behind on our debts with little to no warning.

If you find yourself in a situation where you need to deal with debt but don’t have a good enough credit score to qualify for a debt consolidation loan from a bank.