IN A NUTSHELL
Credit ratings are a vital financial tool that may significantly influence your life. Financial organizations use them to help them determine whether to lend you and what interest rate to charge you, and landlords may use them to decide whether to rent you an apartment. The catch is that you are the only one who can increase your credit scores. This article will help you further understand a good credit score in Canada and how important it is.
What is a good credit score?
According to TransUnion, the typical credit score in Canada ranges from 300 to 900. A decent credit score often ranges from 660 to 724, depending on the scoring model. You’ll be able to apply for additional financial products after your credit score reaches 650 or higher. A credit score of less than 650 will make it challenging to qualify for new credit. Whatever credit you are granted will most likely come with extremely high-interest rates.
How do credit scores range?
Credit scores of 760 may be considered significant by one lender, while scores of 780 or higher may be regarded as excellent by another. There is no universal model for what different credit scores represent to various lenders and creditors; it all depends on the scoring methodology used by the lender and how it is used throughout the approval process. Having said that, below are some basic guidelines that may be useful:
Excellent credit score: 760 and above
Individuals with a credit score of 760 or above are more likely to qualify for the best prices and terms on financial products. They are also more likely to be approved for financing on large purchases and earn promotional rates, perks, and cashback bonuses on new credit cards.
Very good credit score: 725 to 759
This is considered near perfect. Individuals with a score in this range may still enjoy some of the best rates available. While getting decent interest rates in this range is still terrific, it is worthwhile to spend a short duration working your way up to excellent credit to gain higher rewards.
Good credit score: 660 to 724
Individuals with credit scores in this range will usually have little to no problem obtaining new credit. Furthermore, lenders consider these individuals to be low-risk borrowers.
Fair credit score: 560 to 659
Individuals in this range are at or above the average credit score. However, a fair credit score implies that the individual is at a higher risk. Obtaining loans for this range may be difficult or if accepted, lenders may offer them higher interest rates.
Poor credit score: 330 to 559
Credit scores in this range may suggest that a person is having difficulty making timely payments or is in the process of establishing their credit history. They will have very extreme difficulty qualifying for any type of credit.
What are the factors that can affect the calculation of your credit score?
Payment History (35%)
One key component used in calculating your credit scores is managing your payments. Payment history contains the number of accounts you opened as well as any good and bad information about these accounts.
Credit Utilization (30%)
Credit use is the second most important factor affecting a credit score. It refers to the amount of credit used compared to the total amount of credit available. You should retain your credit usage below 30%. Particularly concerning revolving credit, such as credit cards and lines of credit.
Credit History (15%)
This is the total length of time you’ve had your credit accounts open. This factor’s significance varies depending on the scoring models, but for lenders, the longer your credit history, the better because they want to know that you’ve handled debt responsibly in the past.
Public Records (10%)
Bankruptcies, collection issues, liens, lawsuits, and so on are examples of public records. The presence of these public records on your credit report may impact your credit scores negatively.
Credit Inquiries (10%)
These are also known as hard checks. An inquiry is recorded in your credit report when a lender examines your credit file as part of the process of granting credit to you.
Tips On How To Maintain And Improve Your Credit Score
Make it a Habit To Pay Your Bills On Time. Your payment history is the most crucial factor affecting your credit score, accounting for 35% of your score; thus, paying your bills on time every time is one of the most effective ways to enhance your credit score. Use a bill monitoring tool to keep track of your bills or set up monthly automated payments to avoid missing payments.
Stay Within Your Credit Limit. A lower balance compared to your credit limit may improve your credit score.
Avoid Applying For Too Much Credit. According to the federal government, applying for too many loans, having too many credit cards, and requesting too many credit checks in a short time may all hurt your credit score.
Regularly Check Your Credit Reports. Request a copy of your credit report and review it to ensure that your personal information is valid and no incorrect or incomplete account information. If you find information that you feel is incorrect or incomplete, you can file a dispute with the credit bureau that issued the report.
FAQs on Credit Score Range
What is a bad credit score in Canada?
If your credit score in Canada is less than 560, it indicates that you have bad credit in the eyes of some lenders and creditors. While a low credit score might make it challenging to get affordable credit products, it does not mean you are stuck with it. You may work on improving your credit score by using the tips provided above.
What credit score do I need to get a mortgage in Canada?
A credit score of at least 660 is required to get accepted for a mortgage from a major financial institution in Canada. Although lenders would lend you at a higher interest rate, if you have a bad credit score, you may want to consider waiting to repair your credit before applying for a mortgage.
Is credit score the only thing that counts?
While your credit score is an essential consideration for potential lenders, it is not the only thing that matters. Other considerations include your income, if you have any collateral (such as property or other assets) to get a loan, how much other debt you have, and if you have a stable job.
The good news is that you have total control over your credit health, and you can enhance it simply by managing your credit products. Over time, responsible credit card and loan use can enhance your credit score, allowing you to qualify for larger loans, such as a mortgage or car loan, in the future.