{"id":46022,"date":"2023-11-22T11:58:36","date_gmt":"2023-11-22T16:58:36","guid":{"rendered":"https:\/\/hardbacon.ca\/non-classifiee\/what-is-a-credit-score-the-complete-guide-for-canadians\/"},"modified":"2026-08-25T17:12:58","modified_gmt":"2026-08-25T21:12:58","slug":"what-is-a-credit-score-the-complete-guide-for-canadians","status":"publish","type":"post","link":"https:\/\/hardbacon.ca\/en\/credit-score\/what-is-a-credit-score-the-complete-guide-for-canadians\/","title":{"rendered":"What is a Credit Score? The Complete Guide For Canadians"},"content":{"rendered":"\n

A healthy credit score generally reflects responsible financial management. It can help you get more favorable loan terms and lower interest rates when you borrow money to buy a house, study or for any other project requiring a large amount. On the contrary, a bad credit score could have negative impacts on your access to property, credit cards applications and even harm your career! Lenders, insurers and many other companies use your credit score to determine how likely you are to pay them on time. Below is everything you need to understand credit scores in Canada<\/span> and how to check yours before applying for loans<\/span>.<\/p>\n\n\n\n

What is a credit score?<\/span><\/h2>\n\n\n\n

A credit score is a number on a scale of 300 to 900. It tells potential lenders how well you manage debt and credit; money that doesn\u2019t belong to you. You should aim for a credit score of at least 660 to come across well when applying for loans. <\/span><\/span><\/p>\n\n\n\n

The higher the score, the better you are at repaying your debts. The lower the score, the less likely you are to repay your debts. <\/span>As soon as you get your first credit card, you earn points when you show you’re using it responsibly, and you lose points if you have trouble managing credit.<\/p>\n\n\n\n

A good credit score (of 660 or higher<\/a>) can unlock higher lending amounts, lower interest rates and more favourable loan terms. It even influences your insurance premiums in many provinces. <\/span><\/p>\n\n\n\n

Poor credit scores do the opposite. Lower than average scores limit how much money lenders will advance to you, and you\u2019ll get charged higher interest rates too. If your credit score is very poor, you could be denied credit altogether.<\/span><\/p>\n\n\n\n

How is your credit score calculated?<\/span><\/h2>\n\n\n\n

Your credit score is based on the information your creditors share with the credit reporting agencies (or credit bureaus), TransUnion and Equifax<\/a>. They each use their own specific formulas and algorithms to analyze the information on your credit report to calculate your credit score. While your credit score may differ between the credit bureaus<\/a>, they all use the following components as part of their credit score calculation process, and each component is similarly weighted in your credit score by both bureaus:<\/span><\/p>\n\n\n\n

Payment history (35%)<\/span><\/h3>\n\n\n\n

Do you pay your bills on time? I hope so, because your payment history is the most important part of your credit score. Your repayment behaviour makes up 35% of your total credit score. Why? Because it\u2019s the number one indicator that tells lenders whether or not you will pay them back.  <\/span><\/p>\n\n\n\n

If you have a spotless repayment history, lenders have peace of mind that you will pay your loan as agreed. It is unlikely they will have to call you looking for your payment, or send your account to a collection agency.<\/span><\/p>\n\n\n\n

Credit utilization (30%)<\/span><\/h3>\n\n\n\n

The second most important part of your credit score is your credit utilization ratio. It measures how much money you have access to from credit cards and lines of credit, versus how much of that money you have already spent.<\/span><\/p>\n\n\n\n

Those with a low credit utilization ratio are either carrying very low balances on their credit cards and lines of credit, or they don\u2019t carry balances at all. Those with a high credit utilization ratio are carrying balances. It is a red flag that you may be using credit to supplement your income, or that you have trouble managing your money.<\/span> To avoid having a high ratio, do not use more than 35% of the credit allocated to you. For example, if your credit limit is $10,000, spend only $3,500.<\/p>\n\n\n\n

Account types (15%)<\/strong><\/h3>\n\n\n\n

Having multiple types of credit, including credit cards, an auto loan, a mortgage, and a line of credit, improves your credit score. However, you should not exceed the limits and go into debt beyond your capacity. If you only have one credit card and are hesitant to apply for larger loans because you don’t need them, having a second credit card of a different type, such as a store credit card<\/a>, may be beneficial for you.<\/p>\n\n\n\n

You may see codes indicating the type of credit on your credit report. For example, an installment loan such as a car loan will be rated I, plus a number from 1 to 9. In this case, you would see I1 if your payments are made correctly. In the case of a revolving credit such as a credit card that is paid a little late, you would get the R2 code. There is also the letter O for open credit (such as lines of credit) and M for mortgage. The number 1 means you pay your bills within 30 days and helps increase your credit score. Starting at number 7, you are in serious trouble (it indicates a consumer proposal or a debt management plan).<\/p>\n\n\n\n

Number of inquiries (10%)<\/span><\/h3>\n\n\n\n

Every time you apply for credit your potential lender will \u201cpull\u201d or \u201ccheck\u201d your credit. That means they\u2019ve requested a copy of your credit report from Equifax or TransUnion, and that request is recorded on your report as an inquiry. There are two types of credit checks:<\/span><\/p>\n\n\n\n

Soft:<\/strong> Soft credit checks do not affect your score because they are not directly related to new credit, such as when an employer checks your credit, or when you check it yourself. You can check your credit report<\/a> as many times as you want without affecting your credit score<\/span>.<\/p>\n\n\n\n

Hard:<\/strong> Hard credit checks happen every time you apply for credit and they affect your credit score, but only temporarily. If you have several hard credit checks in a short period of time, it signals that you are desperate for credit. The scoring algorithm considers this very risky behaviour and your credit score will drop significantly. <\/span><\/p>\n\n\n\n

Hard credit checks require your consent in every province and territory in Canada except for three: Nova Scotia, Prince Edward Island, and Saskatchewan. In these provinces, they only need to notify you about a credit check, they do not need your permission to check it.<\/span><\/p>\n\n\n\n

Age of credit (10%)<\/span><\/h3>\n\n\n\n

Finally, let’s not forget the overall age of your credit file and your individual credit accounts. When lenders check your credit file, they\u2019re looking at your history managing debt. <\/span><\/p>\n\n\n\n

The older your file is, the more insight lenders have about your borrowing behaviour. If you are new to credit you will naturally have a lower score. That\u2019s because there isn\u2019t enough history or information to accurately assess how well you manage your debt over time. If you are a student or new to Canada, you can start building your credit history right away with credit cards that are easy to get<\/a>. Many lenders offer credit products for those just starting out on their credit journey.<\/span><\/p>\n\n\n\n

Who can access your credit score?<\/span><\/h2>\n\n\n\n

Nowadays, you need to have good credit for pretty much everything. Need a cell phone plan, a new car insurance<\/a> or want to apply for an apartment? Your credit score will influence your success. Insurance providers are starting to use credit scores to help determine the cost of premiums, and even some employers require a credit check before they\u2019ll consider hiring you. <\/span><\/p>\n\n\n\n

Who else can see your credit score? Besides landlords and insurers, credit card issuers, auto loan lenders, potential employers, telecommunications companies, mortgage lenders, utility companies and government agencies are allowed to check your creditworthiness.<\/p>\n\n\n\n

Most people don\u2019t have enough money to pay cash for a new car or a new house. We all need to borrow money at some point in our lives. Your credit score is incredibly important because it dictates whether or not you can borrow money when you need it, how much you can borrow, and the interest rate.<\/span><\/p>\n\n\n\n

Where to find your credit score?<\/strong><\/h2>\n\n\n\n

About 50% of Canadians have already checked their credit score. Over the course of a year, 22% reported having ordered their credit report<\/a>. Do you want to be like them? It is very simple. There are several companies that can let you see your credit score for free<\/a> and read your credit report online, including Borrowell<\/a> and ClearScore<\/a>. If you already have online access to your Scotiabank<\/a>, Desjardins<\/a>, RBC<\/a>, CIBC<\/a> or BMO<\/a> accounts, the easiest solution is probably to log in because these financial institutions allow you to view your credit score. You can also obtain the information you are looking for directly from Equifax<\/a> or TransUnion<\/a>. In any case, this credit check should have no impact on your credit score.<\/p>\n\n\n\n

What to do if there are errors in your file?<\/h3>\n\n\n\n

Let’s say you notice a personal loan that you don’t remember applying for. Start by contacting the loan provider to alert them that someone else has used your name or that there has simply been an error. Then, to have the erroneous information removed from your credit files, you must initiate an Equifax dispute<\/a> or a TransUnion dispute<\/a>.<\/p>\n\n\n\n

Credit score numbers: What do they mean?<\/span><\/h2>\n\n\n\n

That’s it! You’ve checked your credit score for free and you’re surprised by the number. But mostly, you are not sure what it means.<\/p>\n\n\n\n

Credit scores fall into 5 risk categories. The list below comes from Equifax, but your bank, for example, could use slightly different ranges, especially if it is based on TransUnion scores.<\/p>\n\n\n\n

Excellent Credit Score (760-900)<\/span><\/h3>\n\n\n\n

This credit score range unlocks quick, sometimes instant, loan approvals. You\u2019ll enjoy the lowest possible interest rates and access to exclusive credit products like top credit cards<\/a> with lucrative points and cash back rewards.<\/span><\/p>\n\n\n\n

It takes a lot of hard work and discipline to get here. You\u2019ve never missed a payment, you pay off your credit card balances in full each month, and you only apply for credit when it makes sense. <\/span><\/p>\n\n\n\n

Very Good Credit Score (725-759)<\/span><\/h3>\n\n\n\n

Great job! You\u2019ve managed your debt very well and built a credit score to be proud of. You\u2019re financially literate and you manage your personal finances well. You only apply for credit when you really need it. You hardly ever miss a payment and your credit card balances are probably quite low. <\/span><\/p>\n\n\n\n

In this credit score range, you won\u2019t be turned down for credit. Your hard work and debt management skills have unlocked lower interest rates and premium credit card rewards. You may not get that coveted BMO eclipse Visa Infinite Privilege credit card<\/a>, but you still get access to premium products at lower rates with better rewards.<\/span><\/p>\n\n\n\n

Good Credit Score (660-724)<\/span><\/h3>\n\n\n\n

Well done, young grasshopper! You have good credit. Sure, it could be better. <\/span>You\u2019ve probably missed a payment here and there. Maybe that credit card you forgot about was sent to collections. <\/span><\/p>\n\n\n\n

Or maybe you\u2019ve never missed a payment or defaulted, but you\u2019re simply carrying higher balances on your credit cards month over month. You\u2019ve made some mistakes, but nothing you can\u2019t bounce back from. <\/span><\/p>\n\n\n\n

Credit scores in this range will generally not have a problem getting approved for lending. However, you might experience higher interest rates and possibly lower lending amounts. <\/span><\/p>\n\n\n\n

Fair Credit Score (560-659)<\/span><\/h3>\n\n\n\n

Unfortunately, your credit score is below that of the average Canadian<\/a>. You\u2019ll find it difficult to get approved for lending at a traditional bank or credit union. You\u2019ve likely missed quite a few payments or all your credit cards are maxed out, or a mix of both. And you for sure have some bad debt sitting in collections.<\/span><\/p>\n\n\n\n

The good news is that there are still lending products available to you, but you\u2019ll be charged much higher interest rates. You may even be asked to secure a loan with some collateral or a co-signer. Also, you probably no longer qualify for more lucrative rewards credit cards and may have to settle for basic credit card products. <\/span><\/p>\n\n\n\n

Poor Credit Score (300-559)<\/span><\/h3>\n\n\n\n

Oh, dear. Looks like you\u2019ve had a rough time and life handed you a bag of lemons. You\u2019ve missed a lot of payments. Your lenders have charged off a few of your accounts or sent them to collection agencies. And your credit cards are probably charged up over their limits. You\u2019ve gone through a bankruptcy or consumer proposal<\/a> in the past, going through it now, or on your way there. At this point, the major banks and credit unions won\u2019t lend to you. <\/span><\/p>\n\n\n\n

You probably can\u2019t open any new credit cards and may be forced to use a <\/span>secured credit card<\/span><\/a> instead.  But don\u2019t despair. You can come back from this. It will just take time and discipline to increase your credit score. <\/span><\/p>\n\n\n\n

What’s in your<\/span> credit report?<\/span><\/h2>\n\n\n\n

Your credit report is a file that summarizes your history using credit. Every time you apply for a loan or other credit product, it\u2019s documented in your credit file<\/span>. Your lender sends information about you and that debt to a credit bureau. Each lender then sends a monthly report to the credit bureaus on how you are managing the credit they have extended to you.<\/p>\n\n\n\n

Credit reporting agencies document all of your credit items, analyze how you manage them, and then use that information to rate you on a scale of 300 to 900: your credit score.<\/p>\n\n\n\n

But who are these credit bureaus and how do they calculate your credit score? There are two credit reporting agencies: Equifax and TransUnion. They share information with lenders each time you apply for new credit or refinance an existing loan.<\/p>\n\n\n\n\t\t

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Borrowing information<\/strong><\/span><\/h3>\n\n\n\n

Your credit report will display information about your credit products<\/a>, and all your borrowing activity. Late payments, collections, charge-offs, and first-time bankruptcy can stay on your credit report for up to 7 years.<\/span><\/p>\n\n\n\n