What Every Canadian Needs to Know About This Critical Financial Point System.
Credit cards, car leases, mortgages, business loans, student loans, bills, navigating adult life without some form of credit, borrowing, or financial commitment is all but impossible. Despite the variety of ways we can access credit or take on debt, there is one item that will have an impact on all of them: our credit score. Your credit score can affect the interest rate you may be eligible for, the size of the loan you can expect, or whether the lender is willing to approve you or not. A weak credit score can even affect apartment rentals, making it difficult to secure a place to live.
While the actual calculation that goes into determining your credit score can be complicated, it is still of vital importance that you take the time to understand what your score is, and what can impact it. There is a lot to know and consider when it comes to your credit score, but we’re going to look at a few of the key features every Canadian should know and understand.
1. What is a credit score?
Your credit score is a snapshot of the kind of borrower you are, and is used by banks, leasing agencies, and others when deciding whether they will lend to you. In Canada, a credit score ranges from 300-900, with a score of 660 or higher generally considered “good”, “very good”, or “excellent” (Equifax Canada n.d.) depending on where it sits.
A low credit score indicates to potential lenders that you either have significantly more debt outstanding than you can afford to pay, or have a history of late or missed payments, overextension, or even bankruptcy. A weak credit score could also mean that you are new to credit, and don’t yet have an established history of payments.
Whether good or bad, your credit score is a numerical representation of the level of risk you represent to a potential lender or landlord.
2. How is my credit score calculated?
Your credit score is calculated based on the information in your credit report. Your credit report is a record of your current financial situation and history and is collected by the two main credit bureaus in Canada: Equifax and TransUnion.
On your credit report, you will find personal information like name, address, SIN, date of birth, and current and previous employers. This information ensures that each person’s credit report is entirely unique. You will also find: a history of credit payments, outstanding credit balances, public records such as bankruptcy, missed or late payments (including bill payments), open or closed credit accounts, and any credit inquiries.
3. How can I check my credit score?
You can check your score online for free through Canada’s two main credit bureaus, Equifax, and TransUnion. You can also check your score through most personal banking apps in Canada, and through third-party apps and websites like Credit Karma and Borrowell. When using a third-party app to check your score, be aware of advertisements trying to sell you or sign you up for new credit products.
4. What hurts my credit score?
One of the biggest single factors that impacts your credit score is your history of payments. Late or missed payments, incomplete payments, and general payment inconsistency are going to have a huge impact on your score, and not in a good way. The payments that can affect your score may not be limited to things like credit cards and student loans. Late cell phone payments, rent, utilities, leases, all of these can be reported to the credit bureaus and hurt your score.
Other things that can hurt your score include consistently applying for new credit, using most or all of your available credit limit (maxing your credit cards), and carrying a significant balance on your credit card.
5. How can I improve my credit score?
Some great, everyday steps you can take to improve your credit score include paying all your debts, including your credit card, on time and in full each month; limiting your outstanding credit card balance to less than thirty percent of your available limit; setting reminders so you remember which bills are due and how much; don’t apply for credit unless you need it.
If you’re already late on a payment, having a hard time keeping up with the number of payments you must manage, or find yourself slipping further behind each month because of interest, you’re not alone. According to the 2019 Canadian Financial Capability Survey, 39% of Canadians under 65 and 22% of those over 65 are struggling to meet their financial commitments (Financial Consumer Agency 2023). Debt consolidation can be an important step to help get your finances back within your control.
One valuable strategy for debt consolidation is combining many, smaller debts into a single payment, so you’re no longer lost just trying to keep track of what’s due throughout the week, month, or quarter. By simplifying your repayment, it becomes easier to remember to pay your debts, and frees up room within your budget for other daily expenses. Another strategic approach for debt consolidation is to lower charges by replacing high-interest debt like credit cards and payday loans with a lower interest alternative. Lowering the interest you pay can help make it possible to get ahead of your debts, rather than constantly struggling just to keep up.
Unfortunately, improving your credit score is not something that can be done overnight. Even if you start making all your payments on time and in full, late payments will remain on your credit report for up to seven years from the date of the missed payment. (Equifax Canada n.d.)
But don’t worry! That doesn’t mean there’s nothing that can be done. It just means patience will be your ally when it comes to making significant improvements. Good, consistent habits will eventually begin to outweigh your negative history and will start to turn the tide toward improvement and a better credit score.
When it comes to credit, no one is irredeemable. Even bankruptcy only stays on your report for 7-10 years, which means anyone who is dedicated to change can and will see improvement in time.
Your credit score is a valuable, constantly evolving resource that can either unlock the door to significant financial investments like a car, mortgage, or education, or barre the way entirely. Keep up to date on your credit score, pay your bills and outstanding balances on time and in full, and don’t take on financial obligations you don’t need or cannot afford. An investment in your credit score is an investment in your future.
Assistant: Marketing and Program Management
Canadian Foundation for Economic Education
Equifax Canada. n.d. How Long Does Information Stay on My Equifax Credit Report?
Accessed 04 03, 2023. https://www.equifax.com/personal/education/credit/report/how-long-does-information-stay-on-credit-report/#:
—. n.d. What is a Good Credit Score.
Accessed 04 03, 2023. https://www.consumer.equifax.ca/personal/education/credit-score/what-is-a-good-credit-score/
Financial Consumer Agency. 2023. Canadian Financial Capability Survey 2019. 01 31.
Accessed 04 2023. https://www.canada.ca/en/financial-consumer-agency/programs/research/canadian-financial-capability-survey-2019.html