Credit Score Canada

A credit score is basically a numerical representation of your credit profile.  The score is made up of a complex formula designed to assess your creditworthiness and help lenders make decisions on credit applications. Canadian credit scores are used to determine who qualifies for a loan, what interest rates to charge and how much money should be offered.

Any time an application for a loan, credit line, or mortgage, is submitted, it is almost a given that your credit report will be reviewed. The sheer amount of data being collected and analyzed by credit reporting agencies, offers lenders an accurate way predict a person’s financial habits.

The term that is used most often used when referring to a credit rating is ‘FICO score’. It was developed in 1956 in the United States as a way to measure a person’s credit risk. See Wikipedia. In Canada, reporting bureaus use a scoring system that is similar to the FICO credit scoring system.

Keep in mind that organizations interested in reviewing your credit score is not limited to banks or financial institutions, but is used in places such as utility companies, phone companies, insurance, and even landlords. This credit rating system is essentially a trusted tool used by authorized people and is reviewed virtually everywhere in Canada.

Credit scores in Canada range from a low of 300 to a high of 900. Higher scores are viewed more favourably. Without good credit scores, applications for mortgages or credit cards may be turned down altogether. Having low credit scores may lead to higher interest rates or larger deposits. Generally almost 60% of Canadians have near excellent credit scores, while the other 40% fall somewhere between very good and completely bad.

 

What is a good credit score?

Credit scores are complex in the way it is calculated and many factors are used to come up with your rating.   The more common ones are debt levels, payment history, length of credit history, number of new credit applications and types of credit. Canadian credit scores are consistently updated and so you’ll never have the same score on any given month.

There are many things that can affect credit score. In Canada, your financial profile is put together by two credit reporting agencies and each of them calculate your credit score in a slightly different way.  The scores don’t always match up, but your credit rating in comparison to other Canadians will always provide ample insights into your creditworthiness.

The pie chart below shows the distribution of credit rating based on Canadian data. If you have a score of 660 or more, you are generally considered in the good credit territory and should have an easy time getting a loan. A person with very good or excellent score will likely receive better rates and perks than a person with less than stellar scores.

 

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The chart shows the percentages of Canadians who fall within each of the credit group – Poor to Excellent. As you can see, 10% of Canadians have fair credit while 4% are listed as poor. Generally when you dip below the 600 mark, you start to run into difficulties securing credit cards and loans.

Not many creditors will want to do business with you because you are considered a high risk applicant. Individuals who have scores below 600 either have too much debt or have too many late payments. A score in the poor category usually signals lenders that you may have had difficulty in paying your bills, have gone through bankruptcy or other forms of legal action.

Where do you rank among your peers? If you don’t know the answer to this question, now is probably the best time check. There are many ways to get your free credit check and report, make sure you run credit checks once a year and ideally once a month! If you are interested in learning more about this topic, visit our blog on credit scores.