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A good credit score is a valuable tool for anyone trying to navigate their financial life. True, making a decent income and saving money are also healthy practices, but a solid credit score is one of the key factors that can put you in the position to get approved for loans and other types of credit products. You can use those products to pay for your children’s education, get married, even buy a car or a house. While everyone’s financial goals are different, one thing is certain. It’s important to learn about your own credit score so you can always keep it in the best shape possible.
It can be tough to predict what your own credit score will look like in the years to come. You could experience debt issues, job loss, or get your finances back on track, no one can predict the future. While it’s never a good idea to compare your finances to someone else’s, it can be beneficial to understand where your credit score should be during different times in your life as well as how that can affect the overall health of your credit.
What is a Credit Score?
Before we study the average Canadian credit score by age, it’s good to get an understanding of how these scores fluctuate. Your three-digit credit score is essentially a way of summing up your actions as a credit user, similar to how a grade-point-average system works.
To build yourself a better mental picture, think of your credit products (credit cards, loans, lines of credit, etc.) as your school classes. What happens when you do your homework on time and ace your tests? You get a better grade at the end of the semester. On the other hand, if you don’t do your homework and don’t study, you may see your grades getting lower. Next? All your grades get combined to form your GPA. The higher your GPA is, you’re more likely to get into the program you want when you apply at universities and other schools.
There’s a similar occurrence when it comes to your credit score. If you make responsible credit-related transactions, like paying your bills on time and in full, no matter what the product, your score will rise. However, the more irresponsible actions you make, such as late, short, and missed payments, the further your score will drop. And, just like schools do with your GPA, lenders examine your credit score (among other factors) when you apply for their products. The higher your credit score is, the better your chances of approval will be and vice versa.
What Qualifies as a Good Credit Score?
Canadian credit scores range anywhere from 300-900. The closer you are to 900, the better your score is considered and the more likely lenders are to approve you. In addition, the better your credit score is, the lower the interest rate those same lenders will offer you for the use of their products.
In Canada, there are two main credit reporting agencies, TransUnion and Equifax. When you make a credit-related transaction, whether it’s good or bad, your lender reports it to whichever bureau they’re partnered with. That action gets listed on your credit report for a predetermined number of years. Your credit score then fluctuates according to how positive or negative that transaction is. As TransUnion states, a score of 650 or higher is where Canadians should aim to be when they want the best chances of both approval and a good interest rate.
Does the Average Credit Score in Canada Vary by Age?
Generally speaking, yes it does. Unfortunately, a good credit score and the actual average score in Canada are two different numbers. This average score can be somewhat difficult to measure, as it varies from province to province. Plus, our country is always growing in population.
However, according to financial experts, the average credit score Canada wide is somewhere between 600-650. A score of 650 or above is where potential borrowers should aim to be, so it may look like our country has a problem maintaining a healthy credit score. But remember, we are talking about a cumulative average here and Canadian credit scores do indeed fluctuate according to many different factors, including age, debt load, etc.
According to Equifax Canada, one of Canada’s major credit bureaus, the average credit score amongst Canadians from 10 years ago to today has fallen in every age bracket but Generation Z (ages 18 – 25). On average, Canadians within the youngest age bracket (18 – 25) have a credit score of 692 while the oldest (65+) have a credit score of a little over 740. Data also shows that as age increases so does the average credit score number.
Average Credit Score
26 – 35
36 – 45
46 – 55
56 – 65
We speculate this may be due to the fact that it takes time to build credit. As you grow older, you start to build a credit profile with a variation of financial products and your length of credit history increases. These two factors are key components that help establish your credit score. So, it makes sense that the average credit score increases with age. Overall, Canadians seem to have a credit score of over 660 which is considered a good and healthy credit score.
What Does Age Have to do With Credit Score Fluctuation?
Typically, the younger the age group, the lower their average credit scores are. However, this doesn’t necessarily mean that young borrowers are bad with money or irresponsible with their credit cards. So, what else could be the cause of a such a low average among the younger crowd? Well, there are several key factors that cause your credit score to rise and fall in various ways.
Payment History (35% of Your Score)
As we said, younger people are not necessarily more likely to make irresponsible credit transactions than older people. However, at one point or another, we’ve all missed a few credit card payments, especially when we were in the 18-25 age group and were still learning how to use them properly. Before we discovered the benefits of things like online banking and automatic payments, that is.
Debt Owed (30% of Your Score)
Since the amount of credit debt you carry also plays a key role in the calculation of your credit score, it’s no wonder age becomes a factor. As we said, your payment history can be affected by how expensive and manageable your credit products are. Simply put, the more unpaid debt you carry, the lower your credit score may be. Once again, the way age becomes a factor here could be because the younger you are, the more you tend to spend and the less income you’ll be making to counteract it. However, it could also be because the older you get, the more significant your debts will become. After all, what’s a few hundred dollars worth of credit card bills, compared to a $350,000 mortgage?
Length of Credit History (15% of Your Score)
Another factor, responsible for approximately 15% of your credit score breakdown, is the length of your credit history. This one is a particular game-changer for the average Canadian credit score, especially when it comes to the younger generation. In this case, the lowering of the average country-wide credit score is likely due to the younger crowd because of their collective lack of credit history. Plain and simple, the younger you are, the less lengthy your credit history will be. And, because your credit history is shorter, you won’t have had as much time to make responsible use of a variety of credit products, thus keeping your score relatively low.
New Credit (15%)
One area where the age issue can go either way has to do with the number of applications for new credit that occur all over Canada on a daily basis. It’s tough to judge who the ultimate culprit is here because, once again, everyone’s credit habits are different. As we’ve talked about in previous articles, another reason your credit score can drop is when too many hard inquiries are being performed on your credit report. Hard inquiries occur when a lender pulls a copy of your credit report to determine your creditworthiness. Every time you receive a hard inquiry, your credit score drops a few points.
Product Variety (10%)
Another factor, responsible for around 10% of your credit score, is the type of credit products that you’re using. Essentially, the more types of products you have active and are managing responsibly, the better it is for your score. The younger you are, the less likely you’ll be to apply for multiple kinds of credit products, especially the more expensive and harder to manage ones, like mortgages. In fact, you likely won’t even have more than one credit card before your mid-20’s.
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Credit Score Advice Based on Age Groups
As we said before, everyone’s financial journey is different, so the breakdown of credit score advice based on age below, might not work for you. But, we think it’s safe to say that there are a few points in everyone’s life where some credit score advice is definitely needed.
As we said, younger people tend to spend more and make less, but they also don’t typically apply for as many types of credit products. This can make creating a healthy credit history difficult. At this point in your life, it’s in your best interest to start creating some great financial habits that will help you build the credit score you’ll need down the line for when you decide to apply for larger and more expensive lending products.
For 10 ways to live in the present while saving for the future, look here.
Around age 30 is when most people start getting married, buying cars, mortgaging houses or upgrading to more expensive apartments/condos, and having children. All of these avenues of life are likely to be the most expensive. Housing costs, for instance, have been rising all across Canada. And, of course, your own children won’t become self-reliant, financially speaking, more quite some time. It is in this age group where saving should jump to the top of the list of life’s priorities. If not for you, then for the sake of your family and your future. You should start thinking about paying down any consumer debt you might have and stop relying so heavily on your credit cards.
The idea of retirement, though it’s not an actual possibility for most people of this age group, is probably on your mind at this point in your life. Generally speaking, by the time you’re in your mid-40’s, you should have learned to save and spend wisely. At the very least, most of your car loan and mortgage should be paid off. Your children probably have jobs of their own and may even be ready to move out and you should have invested a healthy amount of money into your RRSP.
By this point in most people’s lives, the car and the mortgage are paid, and their children have careers, families, and lives of their own. Many people of retirement age sell their houses and downsize to a comfortable condo or assisted living facility. Lots of retirees even move to areas with warmer climates, where heating and other such utilities become less expensive.
All things considered, when you’re rounding this age, there should be fewer expenses to cover. While a good credit score is definitely beneficial, you’ll probably be more focused on continuing to save for retirement as well as creating a plan to make sure that money lasts as long as you need it to.
A Good Credit Score is Always Useful
As we said, a good credit score is one of the best things you can use in your day-to-day life, no matter what age group you fall into. Not only can a high score help you get the credit products you need, it also helps you save money in interest, money that can come in handy later in life. So, for the sake of your financial well being, it’s best to start building healthy credit early on and maintain it throughout the years.
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