If you’re a Canadian looking to borrow money or make a major purchase, you’ve probably heard the term “credit score” thrown around a lot. But what is a good credit score, and why is it so important?
First, let’s define what a credit score is. Simply put, a credit score is a numerical representation of your creditworthiness. It’s based on your credit history, which is a record of your borrowing and repayment activity. Lenders use your credit score to determine how likely you are to pay back a loan on time. The higher your credit score, the more likely you are to be approved for a loan. A high credit score also means a lower interest rate.
What Is A Good Credit Score In Canada?
According to Equifax, one of the major credit bureaus in Canada, a good credit score is generally considered to be any score above 650. However, the exact definition of a “good” credit score can vary depending on the lender and the type of loan you’re applying for. For example, some lenders may consider a score of 700 to be excellent, while others may require a score of 750 or higher.
It’s worth noting that credit scores in Canada are calculated using a different scale than in the United States. In Canada, credit scores range from 300 to 900, with higher scores indicating a lower risk to lenders. In the United States, credit scores range from 300 to 850, with higher scores also indicating a lower risk.
How Do You Get A Good Credit Score In Canada?
Everyone with financial transactions under their name gets a credit score. That said, there are a few key factors that go into determining your credit score.
Payment History
This is perhaps the most important factor in determining your credit score. Lenders want to see that you have a history of making timely payments on your bills and loans. If you have a history of late or missed payments, it can significantly lower your credit score.
Credit Utilization
Don’t max out your credit cards. This refers to the amount of credit you are using compared to the amount you have available. Maxing out your credit cards can significantly lower your credit score. It’s generally a good idea to keep your credit utilization ratio below 30%. For example, if you have a credit card with a limit of $10,000, you should aim to keep your balance below $3,000.
Credit Mix
This refers to the types of credit you have, such as credit cards, mortgages, and loans. Having a diverse mix of credit can be beneficial to your credit score, as it shows that you can handle different types of credit responsibly.
Length Of Credit History
The longer you have been using credit, the better your credit score is likely to be. This is because a longer credit history gives lenders a better sense of your borrowing and repayment habits.
In addition to these factors, there are a few other things you can do to improve your credit score:
Check Your Credit Report Regularly
It’s a good idea to check your credit report at least once a year to make sure there are no errors or inaccuracies. You can request a free copy of your credit report from each of the major credit bureaus in Canada (Equifax and TransUnion) once a year.
Don’t Apply For Too Much Credit At Once:
Every time you apply for credit, it generates a hard inquiry on your credit report. Too many hard inquiries in a short period of time can lower your credit score. Therefore, it’s important to be selective about which credit applications you pursue.
It’s also worth noting that credit scores can vary depending on the credit bureau. In other words, your credit score may be slightly different depending on whether you check it with Equifax or TransUnion. This is because the two credit bureaus may have slightly different information about your credit history.
Why Is A Good Credit Score Important?
A good credit score can make a big difference in your financial life. For one thing, it can make it easier to get approved for a loan or credit card if the lender checks your credit score. It can also affect the interest rates you’re offered on loans and credit cards. For example, if you have a good credit score, you may be offered a lower interest rate on a mortgage or car loan, which can save you thousands of dollars in the long run.
In addition to making it easier to borrow money, a good credit score can also make it easier to rent an apartment or get approved for certain types of insurance. Some landlords and insurance companies use credit scores as one factor in their decision-making process.
In short, a good credit score is important because it can have a big impact on your financial life. It can make it easier to borrow money and get approved for loans, credit cards, and other financial products. It can also affect the interest rates you’re offered, which can save you a lot of money in the long run. By understanding what goes into your credit score and taking steps to improve it, you can set yourself up for financial success.
