Having a good credit score can open up the doors to better interest rates and borrowing options from lenders. But what is considered a good credit score in Canada and how do you know where you fall on the scale? While the answer will generally vary based on the lender, understanding what a credit score is, what factors influence your score and what steps you can take to improve it, will help you determine how you compare to the average Canadian and what that means for your reputation as a borrower.

What Is A Credit Score?

To put it simply, your credit score is a three-digit number that’s calculated by the credit bureaus in Canada (Equifax® and TransUnion®). This score ranges from 300 – 900 and is an indication of how creditworthy you are, or basically, how likely it is that you’ll be able to pay banks and other financial institutions back.

Your credit score takes these six factors into account:

1. Credit inquiries 10%

2. Credit history 15%

3. Credit utilization 30%

4. Payment history 35%

5. Credit mix 10%

6. And takes into account any instance of being sent to collections or filing for bankruptcy

Understanding what your credit score is and how it’s calculated, will help you better get a handle on how to improve it and use it to access better rates. Those three digits will help determine the interest rate you’ll receive when you apply for a mortgage/loan so understanding what your score is and if it needs improvement, is important information to know.

Credit Score Ranges

The higher your credit score is, the greater your chance of being approved for a mortgage or other loans/credit products. So, once you’re able to check your credit score, you’ll need to determine where you fall on the scale. In Canada, credit scores range between 300 – 900. You’ll find very few people on the extreme ends of the spectrum as most Canadian’s credit scores tend to fall between 600 – 800. Credit scores are set up in a range and the breakdown of each level is as follows:

– A score of 800 or above is considered excellent

– A score between 720 – 799 is considered very good

– Between 650 – 719 is considered good

– 600 – 649 is considered fair

– Anything under 600 is considered a poor credit score

Remember that credit scores are not etched in stone, they are ever-changing. If your score is low currently, it doesn’t mean it’ll be low forever.

How Credit Score Is Calculated

There is a variety of data that’s collected to determine what your overall credit score will be as a borrower. This data may change regularly and as a result, your credit score will adjust accordingly. These are four of the main factors that lenders will look at to calculate your credit score in Canada:

Payment History

Your payment history makes up 35% of your credit score, making it the biggest factor in determining your overall number. Payment history refers to how timely you are when it comes to making your payments on past and current debt. It’s very important to always make your payments on time, even if it’s only the minimum. Be sure to never skip a payment, even if a bill is in dispute, and always reach out to your lender right away if you’re concerned about not being able to make a payment.

Credit Utilization
While you may have a credit card with a $10,000 limit, that doesn’t mean you should be using anywhere near the maximum credit. In fact, how much available credit you’re using (credit utilization) makes up 30% of your credit score. As a rule of thumb, try to use less than 35% of your available credit as it’s always better to have a high credit limit and use less of it each month. If you tend to use up a lot of your available credit, lenders may see you as a risk, even if you pay your balance in full when it’s due. To calculate your ideal credit usage each month, add up the credit limits for all your credit products (loans, credit cards etc.) and then calculate what 35% of that total equals so you know how much credit you should be using each month overall.

Credit History
The length of time you’ve been establishing credit for accounts for 15% of your overall credit score so it’s important to keep your oldest credit cards active, even if you never use them. Instead of cancelling your old credit cards, make sure you’re aware of any yearly/monthly fees and try to use the card every so often. Be aware that transferring an older account to a newer one is considered new credit and could affect your credit score.

Credit Mix
Diversity of credit accounts for 10% of your overall credit score. So, if all you have is one type of credit product (like a credit card), your credit score may be lower. Mixing up your credit is always advisable (car loan, line of credit, etc.) and could improve your score, but only if you can manage the debt and make your payments on time.

Average Credit Score By Province

According to TransUnion), the average Canadian credit score is around 650 but this number does tend to fluctuate by province. Since your credit health has at least a small correlation between the overall health of your finances, where you live does indeed impact your likelihood to have a higher score. It’s a fact that certain provinces/territories offer Canadians more financial opportunities or more financial hurdles, all of which can have an effect on your credit score. These hurdles may involve job opportunities, the cost of housing, insolvency and even the overall cost of living.

Based on a study completed by Borrowell, we’ve put together an overview of the average credit scores found in major cities across all Canadian provinces:

AlbertaCalgary – 650
Edmonton – 625
British ColumbiaVancouver – 687
Victoria – 679
ManitobaWinnipeg – 638
New BrunswickFredricton – 628
Newfoundland and LabradorSt John’s – 664
Northwest TerritoriesYellowknife – 637
Nova ScotiaHalifax – 638
NunavutIqaluit – 644
OntarioToronto – 679 Mississauga – 671 Ottawa – 663 Brampton – 646 Hamilton – 629
Prince Edward IslandCharlottetown – 636
QuebecQuebec City – 676 Montreal – 663
SaskatchewanRegina – 642
YukonWhitehorse – 619

Average Credit Score By Age

According to Equifax, age can have an impact on your overall credit score. In fact, the highest percentage of Canadians with a credit score of 750+ are 65 years of age or older. On the opposite end of the spectrum, the highest percentage of Canadians with a credit score of 520 or lower are 25 years of age or younger.

Credit health and good credit habits take time to develop, so it’s understandable that older consumers would have a higher credit score than younger Canadians who are just starting out on their credit journey and may also be taking the brunt of student loans. If you’re worried about your score being low, just remember it takes time to build it up and with the right habits, you’ll be on the path toward success in the near future.

Equifax surveyed Canadians from various age ranges and monitored their credit scores for a full decade to provide some insight into how they can change over time. According to their most recent generational study, these are the average credit scores by age group:

Age 18 – 25:692
Age 26 – 35: 697
Age 36 – 45: 710
Age 46 – 55: 718
Age 56 – 65: 737
Age 65+: 750

How To Check Your Credit Score

The first step to understanding and knowing your credit score is simply to check it and ensure you monitor it regularly, but nearly half of all Canadians (47%) don’t even know where to check their credit scores! Signing up to use a free service like Borrowell, Credit Karma, MOGO or Credit Verify gives you a chance to monitor your score regularly and gain some insight into how you can improve it.

The more you get used to seeing your credit score with your own eyes, the more likely you are to be motivated to change it or maintain it over time.

How To Improve Your Credit Score

Aside from the calculation criteria listed above, there are additional ways you can improve your credit score in Canada:

Avoid Applying For Too Much New Credit

Credit inquiries account for 10% of your overall credit score so avoid opening unnecessary new credit accounts for the sake of earning more rewards at a local store or unlocking better prices per litre at the gas station. Constantly applying for new credit can come off as a red flag for lenders who may see you as an irresponsible borrower that’s likely a higher risk.

Consolidate Your Debt

If you can, consider consolidating your debt to avoid making multiple payments every month at different interest rates. This can save you money in the short and long term and help make your finances easier to manage if you’re working to pay back old debt.

Pay Down Your Debt

Got debt to crush? Most of us do. Start by making payments on past-due accounts right away. Getting current with anything that hasn’t yet gone to collections is a solid first step. Accounts that are moved to collections will remain on your credit report for 6 years so avoiding that whole process is advisable. If you have multiple sources of debt, experts suggest paying off the debts with the highest interest rates first, regardless of their balance.

Reduce Amount Of Hard Hits On Credit Applications

Occasionally you’re going to apply for more credit, in one form or another, and that’s totally fine. Just make sure you keep these applications to a minimum, so when lenders check your credit report, they don’t see red flags of a borrower who may be living beyond their means or urgently in need of more money. To keep this in check, be sure to limit the amount of times you apply for credit and apply only when you really need it. It’s also important to note that any checks that come through within a 2-week time frame will be counted as one hard hit so when you’re shopping around for better rates on a car loan or mortgage, be sure to cluster all your appointments so your credit score doesn’t take an unnecessary hit when you’re about to need it most.

Understand The Difference Between Hard Checks And Soft Checks

On that topic, it’s very important to understand types of credit checks when you’re applying for new credit, as they both have different impacts on your credit score. Hard checks appear on your credit report and will count toward your credit score. These types of checks can include applications for new credit cards and some rental/employment applications. Any lender who does a hard check on your credit report, will see all of these previous inquiries.

Soft checks appear on your credit report but they don’t affect your credit score. Some examples of soft checks include the action of you requesting to see your personal credit report or businesses asking for your credit report to update their records for an existing account you have with them.

There are a lot of myths and misunderstandings surrounding credit reports and credit scores in Canada. Understanding how to check your credit score, how the scoring process works and what score the average Canadian has, will help you put your situation into perspective and leverage your credit score to get access to better interest rates and improve your status as a borrower. Want to learn more about your credit score and how it may affect your short- and long-term goals? Need to seek out professional guidance? The team at Edison Financial can help!