Your credit score is a key factor to securing credit, accessing better loan rates, and even unlocking renting or employment opportunities. While a strong credit score offers more flexibility with financing, a bad score can hold you back. Understanding and improving your credit score is crucial for unlocking financial opportunities and achieving your financial goals.
Key Points To Remember
| What is a credit score? | A credit score is a 3-digit number that represents your likelihood to pay your debt on time. |
| What is a credit report? | A credit report is a record of your credit history, used by lenders to assess your creditworthiness. |
| How do you check your credit score? | You can check your credit score for free through online platforms, credit bureaus, or some banks. |
| How can you improve your credit score? | To improve your credit score, ensure you pay your bills on time, pay down debt, and avoid opening too many new accounts at once. You can also use building programs and secured credit cards to improve your credit. |
What Are Credit Scores?
A credit score is a number that predicts a borrower’s likelihood to pay back a creditor or lender on time. In Canada, credit scores range from 300 to 900, with a poor credit score being anything below 600 and excellent being anything above 750.
- Low Credit Score: A low credit score indicates to potential lenders that you may be a risky borrower and could be more likely to miss a payment.
- High Credit Score: On the other hand, a high credit score may indicate the exact opposite.
How Are Credit Scores Calculated?
A credit score is calculated using the information found in your credit report. It’s important to note that you may have multiple credit scores for the following reasons:
- There Are Two Credit Bureaus: Equifax and TransUnion, the two major credit bureaus in Canada, each maintain their own credit files. Not all lenders report your credit information to both credit bureaus — some only report to one or none at all. This can impact how your credit scores are calculated.
- There Are Different Credit Scoring Models: Different scoring models, algorithms, and credit report used can lead to slight variations in your credit scores.
As such, the score you see when checking your credit may be different than the one a lender sees.
What Is A Credit Report?
A credit report is a file that includes information regarding your credit history. Lenders and creditors check your credit report to determine your creditworthiness. Credit reports include data regarding the following:
- Personal Data: This includes your name, address, phone number, SIN, employment history, etc.
- Credit History: Your credit report will include information about loans, credit cards, lines of credit, and other forms of credit you currently have and closed accounts (up to 10 -20 years). It details account opening and closing dates, as well as your loan amount and repayment with each creditor.
- Payment History: Any missed payments, as well as payments made on time, are recorded here. Payment history generally accounts for around 35% of your credit score calculation.
- Debt-To-Credit Utilization – Your debt-to-credit ratio, or credit utilization, is based on how much of your available credit you’re using. This factor makes up roughly 30% of your credit score calculation.
- Inquiries: This includes information on the number of people who have been given permission to do a credit check on you. Hard credit checks can temporarily lower your credit score, as credit inquiries usually account for about 10% of your overall score.
- Public Records: This includes information regarding any bankruptcies, consumer proposals, debt settlements, lawsuits, debt collections and other negative marks. This component typically makes up about 10% of your credit score.
Learn more: How To Read Your Credit Report
Want To Know Your Credit Score? Check It For Free Here
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
| How Does Your Credit Score Compare? Are you wondering how your credit score compares to the rest of Canada or your peers? According to Borrowell, the average credit score in Canada is 672. Learn more: Average Credit Score In Canada By Province |
What Happens If You Have Good Credit Scores?
A ‘good’ credit score in Canada is considered anything above 660. With good credit, you can benefit from the following:
- Easier Loan Approval. A good credit score makes it easier to get approved for various types of loans. Lenders see you as a lower-risk borrower, increasing your chances of approval.
- Lower Interest Rates. With a strong credit score, lenders are more confident in your ability to repay, which often results in lower interest rates. This can save you a significant amount of money in interest charges over the term.
- Higher Credit Limits. Good credit scores often qualify you for higher credit limits on credit cards and lines of credit. This gives you more spending flexibility and can help improve your credit utilization ratio.
- Better Loan Terms. Good credit can also lead to favourable loan terms, such as longer repayment periods, reduced fees, or flexible repayment options
Learn more: What Is A Good Credit Score In Canada?
What Happens If You Have Bad Credit Scores?
If you have bad credit, you may find yourself facing several challenges, including the following:
- Difficulty Getting Approved For Loans. Lenders view bad credit as a sign of higher risk, making it harder for bad credit borrowers to qualify for loans.
- Higher Interest Rates. You may be charged much higher interest rates, which can increase your overall borrowing costs.
- Insurance Premiums. In some provinces, insurance providers, particularly car insurance providers, can use your credit score when calculating your premiums. Bad credit scores can lead to higher costs.
- Getting a Job or Rental. Many landlords vet tenants by checking their credit. If you have bad credit, they may reject you. Similarly, some employers may require credit checks, particularly for jobs involving financial management.
Learn more: What Is Bad Credit And How Do You Improve It?
| Reasons You May Have Bad Credit There are a multitude of reasons you may have bad credit, including: – You have maxed out your credit cards. Meaning, your credit utilization ratio is high, which can negatively impact your credit. – You’ve cosigned for someone who has defaulted on their loan. – You’re ignoring a bill that is past due. – Unpaid utility and phone bills may affect your credit too, especially if your debt is sold to a collection agency. – You’ve applied for too many credit accounts. – You’ve closed an old credit account. |
Can You Improve Your Credit Scores?
Whether you’re newly establishing your credit or trying to improve your credit, there are steps you can take to help build your credit scores. Besides managing credit responsibly, these programs can help you build stronger credit:
| KOHO’s Credit Building Programs | Get Help Now |
| Spring Financial – The Foundation | Get Help Now |
| Chexy | Get Help Now |
| Nyble | Get Help Now |
| Secured Neo Mastercard | Get Help Now |
KOHO Credit Building Program
If you have trouble accessing affordable credit due to past financial or credit mistakes, a credit building program could be the solution you need. KOHO’s Credit Building Program is a credit-building line of credit program with a monthly subscription fee. All you need to do is make on-time payments every month. These payments are reported to a credit bureau, which can help build your credit history.
Features:
- Guaranteed approval: Everyone qualifies, even those with bad credit.
- Track progress: Get insights into your credit score improvements.
- No interest charges: Pay zero interest on your credit line.
- Subscription-based: Plans start at $4/month (which can be waived with a direct deposit of any amount to your account)
Spring Financial – The Foundation
The Foundation is a credit-building program designed to help consumers improve their credit score while saving money over a 12-month period. It’s not a traditional loan, as you don’t receive funds upfront. Instead, you make regular payments, which are reported to the credit bureaus to help you build your credit history.
Part of each payment is held in an account, and after 12 months, you’ll have $750 saved that you can use.
Features:
- 100% Approval Rate: There’s no credit check or income requirement to get approved.
- Save Money: Upon completion, you’ll have $750 saved up.
- Free Credit Score: Get access to your Equifax credit score to help you track your progress.
- Upgrade To The Evergreen Loan: Once you complete The Foundation, you’re guaranteed approval for the Evergreen Loan, which is a $1,500 cash advance.
Chexy
Chexy’s Credit Builder program is a rent-reporting tool that helps Canadian renters improve their credit score by using their monthly rent payments to build a positive credit profile.
Rent payments may be one of the biggest bills to pay, but they’re not usually reported to the credit bureaus. With the help of a service like Chexy, you can use these payments for credit building purposes that otherwise wouldn’t be possible.
Features:
- Rent Payments Reported To The Credit Bureau: Chexy reports your on-time rent payments to Equifax, one of Canada’s major credit bureaus. This helps build a positive payment history, which is good for your credit score.
- Use Your Credit Card To Pay Rent: You can choose to pay via Visa or Mastercard, which can help extend your credit file and further boost your credit score.
Nyble
Nyble is a financial tool designed to help consumers improve their credit score using a small, interest-free line of credit. You’ll be approved for a revolving credit line of anywhere from $30 $250 based on your income and banking information. No credit check is required.
Your payments are then reported to Equifax and TransUnion, helping you build good credit.
Features:
- No Credit Checks: While you need to be approved, there’s no credit inquiry involved, so bad credit is OK.
- Paid Membership For Additional Features: While Nyble is free to use, you can opt for the paid membership option ($11.99/month), which comes with faster funding, full credit reports, and digital identity protection.
- Get Higher Credit Limits With On-Time Payments: If you keep up with your payments, you can eventually access a higher credit limit.
Neo Secured Mastercard
If you have bad credit, a secured credit card can be a more viable option than getting a regular credit card. A secured credit card is secured with a cash deposit, and on-time payments are typically reported to the credit bureaus, helping you build good credit.
The Neo Secured Mastercard is a great option to help you build credit without taking on additional debt and taking advantage of credit card-like features. It’s designed for people with low or no credit history, with guaranteed approval and cashback rewards. You can use it to make online or in-store purchases, then make payments to help build a positive credit profile over time.
Features:
- Cashback Rewards: Earn up to 4% cashback, depending on the spending category.
- Monthly Fees: Choose either the Base Plan for $5/month, or the Premium Plan for $9.99/month.
- No Credit Checks: Get approved for the Neo Secured Mastercard regardless of your credit score.
- Security Deposit Required: You’ll need to make a minimum $50 security deposit to start using the card.
Secured Credit Cards
If you have bad credit, a secured credit card can be a more viable option than getting a regular credit card. A secured credit card is secured with a cash deposit, which is usually the same amount as the credit limit. Once the deposit is paid, you can use the secured credit card in the same way you would use a regular credit card.
Most secured credit card providers report your payments to the credit bureaus, which can help build your credit health. Just keep in mind that everyone’s credit profile is different and therefore will react differently. As for your deposit, you’d get it back once you close your account.
| Annual Fee | Purchase Interest Rates | Min. Deposit | |
 Secured Neo Mastercard | $5/monthly | – 19.99% – 29.99% – QC: 19.99% – 24.99% | $50 |
 Secured Tims® Mastercard | $0 | – 20.99% – 26.99% – QC: 20.99% – 24.99% | $50 |
 Home Trust Secured Visa Card | 0$ or $59 | – 19.99% (no annual fee) – 14.90% (with annual fee) | $500 |
 Vancity enviro™ Secured Visa* card | $0 – $395 | 11.25% or 19.50 % | $500 |
How To Maintain Good Credit
Once you’ve built good credit, you’ll need to work on maintaining it, which you can do in the following ways:
Keep Paying All Your Bills On Time
Creditors and lenders typically report both on-time and missed payments to the credit bureaus. However, other entities may do the same, like telephone providers and utility companies. If you fall behind on your payments, your credit score could suffer, so be sure to keep up with your bills to maintain your score.
Keep Your Credit Utilization Low
Ideally, you should keep your credit utilization ratio to no more than 30% of your credit limit. Exceeding this threshold can impact your credit negatively, so it’s best to keep all your credit card balances below this ratio.
Don’t Close Old Accounts (If You Can)
Unless you have a good reason for cancelling a credit account, it’s best to keep it open, as closing an account may affect your credit scores negatively.
One of the many factors used in the calculation of a credit score is the total length of your credit history, or how long you’ve been a credit user. Closing an old account will shorten your credit history and can affect the health of your credit. The longer you have an account open, the better it looks to creditors.
Avoid Opening Too Many Credit Accounts
As with closing an old account, opening a new account also lowers the average age of your accounts. So it’s best to avoid opening too many new accounts, especially within a short period of time.
Moreover, applying for too many credit products within a short period of time means more credit checks, which can bring your score down by a few points. Too many credit checks can also indicate to lenders that you’re in a desperate financial situation, which may affect your chances of loan approval.
Monitor Your Credit Report
Check your credit report every 6 to 12 months, which will give you a chance to catch any errors on file that may affect your credit scores negatively. If you notice any errors, have them fixed right away to see a quick credit score boost.
You can use this opportunity to catch any signs of fraud, which can cause serious financial and credit issues for you.
Learn more: How To Improve Your Credit Scores
Why Are Credit Scores Important?
It isn’t just lenders and creditors that can check your credit — there are many other instances where you may have to undergo a credit check and where your credit score matters:
- When Renewing A Loan: If you need to renew a financial contract with a lender or creditor, they may want to conduct another credit check to make sure you’re still creditworthy.
- When Looking For An Apartment: Landlords often review credit scores when evaluating rental applications. A good credit score increases your likelihood of being approved for a lease because it demonstrates timely payment history.
- When Looking For Work: Some employers, especially those in the financial industry, check credit reports during the hiring process. Good credit can boost your chances of securing a job.
- When Taking Out Insurance: Many insurance companies use credit scores to set their premium prices. A higher score can lead to lower rates for auto, home, and other insurance policies, saving you money.
- When Getting Utility Hook-Ups: Before providing their service, utility and phone companies may require a credit check. Good credit is a sign that you’ll be reliable with your bill payments.
