What is a good credit score in Canada?

What is a good credit score in Canada?

March 8, 2020 Money Money Clinic News 1
Increase your Credit Score in Canada

“… unfortunately you do not qualify for this type of credit”. These are some of the terrible words that you are not looking forward to when applying for credit. If you have received such words maybe it is because your credit is bad or you applied for credit you don’t afford. This article will help you build your credit score and be able to choose a credit facility that you can afford.

Many Canadians are buying houses, groceries, gas, clothing, automobiles, and other things using credit. On average a Canadian adult possesses 2.2 credit cards, according to research by creditcards.com. Credit is part of us and we cannot ignore our score. Keeping a healthy score is what we need to aim for.

Learn how to keep a good credit score and know the advantages that come with having a good credit score. To achieve this you will need to monitor your spending habits, drawing monthly or a medium-term budget will help tremendously.

What is a credit score?

A credit score is a tool used by lenders to understand your actions as a credit user. A score has three digits and ranges between 300-900. Landers reward those with high credit scores, with high credit lines and reduced interest rates in some instances.

Score thresholds in Canada

Credit score ranges between 300 – 900 in Canada. Below are thresholds that quantify your score.

  • 800 – 900, resemble excellent credit
  • 720 – 799, resemble very good credit
  • 650 – 719, resemble good credit
  • 600 – 649, resemble fair credit
  • 300 – 599, resemble bad credit

With an excellent score, you will be highly favoured by lenders. You will have better or more credit options to choose from. While with bad credit, you will need to produce serious evidence that you will be able to pay lenders.

What is a good credit score in Canada?

A good credit score in Canada is a score between 650 – 900. This score is very attractive to lenders such as banks. A good credit score can get you top of the range credit facilities.

You can rent an apartment or a house in any metro in Canada. You can buy almost any car you want or a house that you have been dreaming of all these years. Note that credit is subject to your gross income or revenue in terms of companies.

Companies like Transunion are the ones that calculate your score using different criteria.

Normally they calculate using your payment history, how often you enquire for credit, a number of years with a credit facility, how much credit you spend and a number of credit facilities.

Transunion then acts as an agent to lenders who will use your score to calculate how much credit you qualify for.

Disadvantages of bad credit score

A bad score can be as a result of opening your first credit line and in this case, your score will grow as you pay.

There are circumstances where bad credit is as a result of negligence and poor financial management. For example skipping payments due, ignoring calls from debt collectors, not making payment arrangements.

These will definitely decrease your score and will make you untrustworthy to lenders. You may even incur penalties and interest for not paying on time.

Let’s look at the disadvantages of bad credit

  1. Loan and credit facilities may not be approved
  2. Incurring interest on loans
  3. Becomes difficult to get approved for a rental property
  4. You lose out on getting a mobile contract
  5. Pay high insurance premium
  6. It becomes difficult to buy a car
  7. You get endless calls from debt collectors
  8. It becomes difficult to get employment
  9. It affects your business from getting credit
  10. You need to pay deposits for utilities

Advantages of having a good score

Having a good credit rating requires self-discipline and planning. In order to maintain a good credit rating, you need to understand your spending.

Keeping your spending on all your credit at 30% or less will increase your score. Paying your credit on time will be a huge advantage.

Below are 9 advantages of having a good credit score

  1. Avoid security deposits on utilities
  2. You pay low insurance premiums
  3. High chance of loan and credit card approval
  4. Low-interest rates on loans and credit cards
  5. Get approved for higher credit limits
  6. Get to be accepted for a rental property
  7. You have a negotiating power
  8. You get better car insurance rates
  9. Your business can qualify for better credit

How to increase your score?

You have probably checked your score from month to month, looking at how your credit score is doing. You can increase your score by doing a combination of things.

If you have a bad score you are not doing things the right way. Here is a list of things that you can do to increase your credit score in Canada.

  1. Pay your bills on time
  2. Don’t close unused credit cards
  3. Keep your overall credit spending at 30%
  4. Don’t apply for too many credit lines
  5. Apply for credit as and when needed
  6. Get your credit report and dispute instances that didn’t occur
  7. Avoid taking too much debt
  8. Keep your credit open

How is information kept on your credit profile in Canada?

  • On credit Enquiries, information is kept for 3 years minimum
  • The credit history and payments information is kept for 6 years from the last activity date
  • On bankruptcy, information is kept for 6 years from the date of discharge
  • Secured loans information is kept for 6 years from the date filed
  • On garnishes and judgements, information is kept for 6 years from the date filed
  • On credit, counselling information is kept for 3 years from the date of settlement

Achieving a good credit score is possible and has its many advantages. Your financial life will be better off having a good credit score. Always maintain a good credit score at all times. Pay your credit on time and keep track of your expenses.

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