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Your Credit Score in Canada: What You Should Know

Your credit score impacts a range of lending decisions, from whether you can secure a mortgage, car loan, or even an apartment rental. If a poor credit score is holding you back from achieving your financial goals, there are steps you can take to repair your credit.

Keep reading to understand what makes your credit score rise or fall and what you can do to improve your credit score.

What is a Credit Score?

Your credit score is a three-digit number that ranges from 300 to 900. Your credit score indicates how risky it is to lend you money.

Your credit score impacts most of the important financial decisions in your life, including whether you can get a:

  • Mortgage
  • Car loan
  • Credit card
  • Personal loan
  • Line of credit

It also determines the interest rate you’re charged when you take on a new credit account.

When you apply for a new credit card or loan, lenders typically perform a credit check so they can review your credit report and score. This helps them decide if they’ll lend you money or extend credit.

A low credit score can act as a red flag to lenders, signalling that you might struggle to repay your loan. A high credit score shows you’ve managed your credit well in the past and you’re likely to make your payments.

What is a good credit score?

According to FICO credit scores, a good credit score ranges from 670 to 739. A very good credit score ranges from 740 to 499, and an exceptional credit score ranges from 800 to 900.

A good credit score can improve your eligibility for a larger number of loans and credit and can help you secure a better interest rate and terms. This can ultimately help you save more money over time.

What is a poor credit score?

A poor credit score ranges from 300 to 579. This is a score that is below average and indicates a high level of risk to lenders. A fair score ranges from 580 to 669, while still below average, some lenders may offer you a loan with this score.

With a poor credit score, you may find it more difficult to secure a loan or new credit and you’ll likely pay a higher interest rate.

How is My Credit Score Calculated?

Five main factors go into calculating your credit score, these include:

  • Payment history (35%). A history of on-time payments can increase your credit score while a late or missed payment can harm your score.
  • Amounts owed (30%). This is a measure of how much of your available credit is in use. If you’re always maxing out your credit cards, lenders might worry about your ability to manage credit.
  • Length of credit history (15%). Generally, a longer credit history will increase your credit score. A longer history gives lenders a better sense of how you manage credit.
  • Credit mix (10%). Lenders like to see that you can manage different types of credit. Having a mix of revolving credit (credit cards) and installment credit (personal loans) can help to improve your score.
  • New credit (10%). If you open several new credit accounts in a short time, this can act as a red flag to creditors and can cause your credit score to drop.

How do public records impact my credit score?

If you’ve ever filed for a Consumer Proposal or Bankruptcy, these can have a negative effect on your credit score.

Equifax will keep a Consumer Proposal on your credit report for three years after you pay your debts, or up to six years after you sign your proposal, whichever is sooner.

Filing for Bankruptcy will drop your credit score to the lowest rating and can stay on your credit report for up to seven years after the date you’re discharged. If you declare Bankruptcy more than once, the information can appear on your report for up to 14 years.

With TransUnion, a Consumer Proposal is automatically removed from your credit report six years after showing up on your account. Depending on the province where you live, Bankruptcy can stay on your report for six to ten years.

How to Repair My Credit Score?

If you have a poor credit score due to a Consumer Proposal, Bankruptcy, or because you went through some difficult financial times, there is hope for repair. There are several actionable steps you can take today to start your credit repair journey.

Pay your bills on time

Your payment history accounts for the largest portion of your credit score. If you want to boost your credit, your number one focus should be paying your bills on time, every time. Consider automating your bill payments to prevent a late or missed charge.

Keep your balances low

Maintaining low balances on your credit cards shows lenders that you aren’t overextending yourself and can manage your credit. Aim to keep your balances low. One strategy is to make regular payments to your credit card throughout the month rather than waiting until the end when money might be tight.

Only apply for credit when you really need it

Applying for multiple credit cards or loans in a short amount of time can make it look like you’re desperate for credit and can negatively impact your credit score. You should only apply for credit when you really need it.

Don’t close old credit accounts

If you have an old credit account that you no longer need, you might want to keep it open. Closing an old account can decrease the length of your credit history which may lower your credit score.

Regularly review your credit report

By monitoring your report you can become familiar with what your creditors see and identify if there are any issues or inaccurate information.

Speak to a Licensed Insolvency Trustee (LIT)

While repairing your credit score is possible if you feel overwhelmed by the process, consider speaking to a Licensed Insolvency Trustee (LIT). LITs are also credit counsellors and can provide guidance and tips on managing your credit.

How to Check My Credit Score?

There are two main credit bureaus in Canada, TransUnion and Equifax. Credit bureaus are responsible for collecting information about how you use credit. You can access a free credit report from both credit bureaus online, by mail, over the phone, or in person. For more information on how to get a free copy of your credit report, visit the Government of Canada website.

Need Help Improving Your Canadian Credit Score?

If you want to improve your credit score but need help, reach out to a Licensed Insolvency Trustee at Allan Marshall & Associates. We are here to help, you don’t have to do this alone. Dealing with debt or credit issues can feel overwhelming but help is available. If you’re ready to discuss your debt and repair your credit score give us a call today at 1-888-371-8900 or fill in our online contact form.

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Scott Marshall BBA, C.I.R.P, L.I.T

Scott is serving as Vice President and managing partner of Allan Marshall & Associates Inc. since obtaining his License as a Trustee (LIT) in 2003. Scott graduated with a Bachelor of Business Administration (BBA) from the University of New Brunswick and is an active member of the New Brunswick business community. In past years, Scott has been a valued member of the Wallace McCain institute.