What Is a Good Credit Score in Canada?

Credit scores play a vital role in your financial life, but many Canadians are unsure about what constitutes a good score. At Financial Canadian, we often get questions about when credit scores started in Canada and how they impact various aspects of personal finance.

In this post, we’ll explore what makes a good credit score in Canada and why it matters for your financial well-being.

Understanding Credit Scores in Canada

What Is a Credit Score?

A credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850 in Canada. This three-digit number is calculated based on your credit report, which contains information about your borrowing and repayment history. Lenders, landlords, and sometimes employers use credit scores to assess your financial reliability.

The Range of Credit Scores in Canada

In Canada, credit scores generally fall between 300 and 850. According to FICO, scores are typically categorized as follows:

• Below 580: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very Good
• 800 and above: Excellent

Different lenders may have their own criteria for what they consider a good credit score. For instance, some mortgage lenders might prefer scores of 680 or higher for the most favorable interest rates.

Key Factors Influencing Your Credit Score

Several factors contribute to your credit score calculation. Understanding these can help you take steps to improve or maintain a good score:

1. Payment History (35%): This is the most significant factor. Consistent on-time bill payments positively impact your score.
2. Credit Utilization (30%): This refers to how much of your available credit you use. Keeping your credit card balances low (ideally below 30% of your limit) can help boost your score.
3. Length of Credit History (15%): Longer credit histories generally result in higher scores. This is why it’s often advised to keep old credit accounts open, even if you don’t use them frequently.
4. Credit Mix (10%): Having a diverse mix of credit types (e.g., credit cards, installment loans, mortgages) can positively influence your score.
5. New Credit Inquiries (10%): Each time you apply for credit, it results in a hard inquiry on your report. Too many inquiries in a short period can negatively impact your score.

Monitoring Your Credit Score

We recommend checking your credit score regularly. Many banks and credit card companies now offer free credit score checks to their customers. Alternatively, you can request a free credit report from Equifax or TransUnion once a year. Regular monitoring allows you to spot any errors or potential fraud early, helping you maintain a healthy credit score.

Now that we understand what a credit score is and how it’s calculated, let’s explore what’s considered a good credit score in Canada and how it can impact your financial life.

What Makes a Good Credit Score in Canada?

Understanding Credit Score Ranges

Credit scores in Canada typically range from 300 to 900. Equifax, one of Canada’s major credit bureaus, categorizes these ranges as follows:

• 300-559: Poor
• 560-659: Fair
• 660-724: Good
• 725-759: Very Good
• 760-900: Excellent

These ranges can differ slightly between credit bureaus and lenders. TransUnion, another major credit bureau in Canada, uses a slightly different scale.

The Impact of Your Credit Score

A good credit score (660-724) opens up more financial opportunities. With this score, you’ll likely receive approval for most credit products, although you might not always get the best rates. Lenders view you as a responsible borrower who will likely repay debts on time.

Very good (725-759) and excellent (760+) credit scores can unlock the best financial products and rates. If you’re in these ranges, you belong to an elite group of borrowers. According to FICO, as of April 2023, the average credit score in Canada was 762, putting the average Canadian in the excellent range.

The Difference a Few Points Can Make

Even small improvements in your credit score can have significant impacts. For example, moving from a fair score (650) to a good score (670) could mean the difference between approval or denial for a mortgage. It could also mean saving thousands of dollars in interest over the life of a loan.

According to Rates.ca, most non-prime rates run about one to two percentage points (100-200 bps) higher than prime rates, although people with serious credit issues may face even higher rates.

Benefits of an Excellent Credit Score

While a good credit score suffices for most financial needs, an excellent score can provide additional benefits. These may include:

1. Access to premium credit cards with better rewards
2. Higher credit limits
3. More negotiating power with lenders
4. Better insurance rates in some provinces

Improving your credit score takes time and consistent effort. It’s not just about reaching a certain number, but maintaining good financial habits over the long term.

How Your Credit Score Affects Loan Approvals

Your credit score plays a significant role in loan approvals. Lenders use this score to assess your creditworthiness and determine the risk of lending to you. A higher credit score increases your chances of loan approval and often results in better terms and lower interest rates.

For instance, with a good credit score, you might qualify for a personal loan with an interest rate of 8-10%. However, with an excellent credit score, you could secure the same loan with an interest rate as low as 5-7% (depending on other factors such as income and debt-to-income ratio).

This difference in interest rates can translate to substantial savings over the life of the loan. The impact becomes even more pronounced for larger loans like mortgages, where even a small difference in interest rate can result in thousands of dollars saved over the loan term.

How Your Credit Score Shapes Your Financial Future

The Power of Your Credit Score in Loan Approvals

Your credit score is more than just a number; it’s a key that unlocks financial opportunities and determines the cost of borrowing money. When you apply for a loan, lenders often look at your credit score first. A high score can make the difference between approval and rejection.

For instance, if you apply for a mortgage with a credit score of 750, you’ll likely breeze through the approval process. However, if your score is 600, you might face significant hurdles or even outright rejection.

Data from the Canada Mortgage and Housing Corporation shows that borrowers with credit scores below 600 are often considered high-risk and may not qualify for traditional mortgages. These borrowers might need to turn to alternative lenders, who typically charge much higher interest rates.

Impact on Interest Rates and Credit Limits

Having high-interest rate loans or credit cards does not directly impact credit scores. But missing a payment on this type of loan can cost you a lot of money and potentially affect your credit score negatively.

Credit limits also heavily depend on your score. A study by TransUnion found that Canadians with excellent credit scores (800+) had an average credit limit of $24,000 across all their credit cards, compared to just $3,000 for those with poor scores (below 600).

Credit Scores in Rentals and Employment

Your credit score’s influence extends beyond loans. Many landlords now check credit scores as part of the rental application process. A federal proposal to include rental payments in calculating credit scores might help some Canadians move into home ownership, but it could have consequences.

In the job market, while less common, some employers do check credit scores, especially for positions involving financial responsibilities. A survey by the Society for Human Resource Management found that 13% of employers conduct credit checks on some job candidates.

The Long-Term Financial Impact

A good credit score opens doors to better financial opportunities across all aspects of your life. Whether you want to rent a new apartment, finance a car, or land your dream job, your credit score can make a significant difference.

The impact of your credit score compounds over time. Those with higher scores consistently receive better interest rates, higher credit limits, and more favorable terms on financial products. This advantage can lead to substantial savings over a lifetime, allowing for more financial flexibility and opportunities for wealth building.

Final Thoughts

A good credit score in Canada ranges from 660 to 724, with higher scores considered very good to excellent. Credit scores in Canada started in the 1960s and have become increasingly important for financial well-being. You can improve your score by paying bills on time, keeping credit utilization low, and avoiding excessive credit applications.

Regular credit report monitoring helps identify errors and maintain a healthy score. A strong credit score opens doors to better loans, favorable interest rates, and even influences rental and employment opportunities. Your credit health reflects your financial habits and impacts your future financial options.

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