Before you can borrow money for a mortgage, credit card, or car loan, a lender will review your credit score and credit report to determine if they want to lend you money. Generally, a higher score means you’re more likely to get approved for new credit at a better rate. A poor credit score tends to limit your borrowing options. However, there are things you can do to improve your BC credit score and increase your chances of getting approved for new credit.
What is Your Credit Score?
Your credit score is a three-digit number that ranges from 300 to 900. A higher credit score shows lenders that you manage your credit well. A low credit score indicates a higher level of risk.
Anytime you apply for a new credit account, such as a credit card or personal loan, the lender will perform a hard credit inquiry. This allows them to review your credit score and credit report so they can decide if they want to lend you money.
What is the Average BC Credit Score?
According to data from the credit education company Borrowell, the average Canadian credit score is 672. The average BC credit score is slightly higher in cities like Victoria (694), and Vancouver (705). To put this in perspective, a credit score of 660 to 724 is considered “good,” according to the credit bureau Equifax. A score of 725 to 759 is very good, while a score of 760 and up is considered excellent.
In general, if you have a score over 660, lenders will view you as a lower-risk borrower. If you have a score below 660, you can still qualify for a loan or new credit, but you can expect a higher interest rate. If your credit score falls into the poor range (anything below 560), you might find it challenging to qualify for credit.
How is Your Credit Score Calculated?
Canada’s two main credit bureaus, Equifax and TransUnion, calculate Canadian credit scores. Several factors can influence your credit score, including:
- Payment history. Do you pay your bills on time? Your payment history accounts for the largest portion of your credit score. A history of prompt payments can help to increase your score. If you make your payments late or miss a payment, this can negatively impact your score.
- Available credit. How much of your available credit are you using? Are your credit cards maxed out? Or do you only use a small portion of your available credit? Lenders want to see that you aren’t overextending yourself.
- Length of credit history. When did you open your first credit account? Lenders want to see a long history of successful credit management.
- Public records. Have you ever declared Bankruptcy? Any insolvency proceedings or accounts in collections can negatively impact your credit score and signal higher risk to lenders.
- Recent inquiries. Any time you apply for new credit, a hard inquiry is performed. This can lower your credit score by a few points. Having several inquiries in a short amount of time can negatively impact your credit score. Aim to only apply for credit when you really need it.
Factors That Can Affect Your Credit Score
Other variables that can cause your score to rise and fall, include:
- Household debt. According to Q3 data from Equifax, the average BC household debt sits at $21,765. A high debt load can make it more difficult to repay your bills. If you start to miss payments, this can negatively impact your credit score.
- Household income. BC residents boast a relatively high median after-tax household income of $97,800, second only to Ontario. However, the average household expenditure ranks the highest at $79,591.
- Cost of living. It’s expensive to live in BC. Thanks to factors like inflation and the high cost of housing, the cost of living in BC is among the highest in Canada. According to Equifax, more Canadians are turning to their credit cards to try and accommodate for an increase in expenses, resulting in more debt.
- Insolvency. British Columbia saw an increase in consumer insolvencies in Q2 of 2023, up from Q1. Both the number of Bankruptcies and Consumer Proposals increased. Having a Bankruptcy on your credit report can result in the lowest credit rating.
What about Rent Payments in BC ?
Landlords can report payments to the credit bureaus, but it depends on the individual landlord if they wish to pay a fee to do so. The Landlord Credit Bureau (LCB) operates in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Landlords report to them and they will pass on rent payment information to Equifax Canada where it will appear on your credit report. If you fall behind on rent payments and they go to collections, that collection activity will show on your credit report.
How to Improve Your Credit Score
If your credit score isn’t where you want it to be, there are steps you can take to improve it. While a change won’t happen overnight, with time and effort, it’s possible.
- Pay your bills on time. Since your payment history accounts for the largest portion of your credit score, paying your bills on time, every time, is one of the most important things you can do.
- Limit credit usage. Try to avoid maxing out your credit cards. Instead, aim to keep your credit utilization ratio (a measure of how much credit you owe versus how much credit you have available to you) below 30%. For instance, if you have $5,000 in available credit, aim to use $1,500 or less.
- Create a budget. Think of a budget as a plan for your money. Instead of getting to the end of the month and questioning where your money went, you can decide how to spend your household income. There are plenty of online budgeting templates as well as budgeting apps you can use.
- Regularly review your credit report. Reviewing your credit report can help you identify potential errors and make you aware of what lenders see when they look at your report.
- Reach out to a Licensed Insolvency Trustee (LIT) for help. Whether you need assistance creating a budget, managing your credit, or you’re drowning in debt and thinking about a Consumer Proposal or Bankruptcy, an LIT can help.
Talk to a Licensed Insolvency Trustee
Unless you plan to never use a credit card or borrow money, your credit score is an important part of your financial life. If you’ve fallen on tough financial times and your credit score has suffered, it’s possible to rebuild your score over time.
A Licensed Insolvency Trustee can assess your finances and recommend a solution to help you get back on track. Whether you want to reach out for credit counselling or to discuss a more formal debt relief option, such as a Consumer Proposal or Bankruptcy, an LIT can help. For a free, no-obligation consultation, call us at 1-888-371-8900, or reach us online.