What’s a good credit score in Canada?
Credit scores are an important financial tool that can have a significant impact on your life. It helps you to build your financial confidence and security. Financial institutions use them to help decide whether to give you a mortgage or loan. It’s even possible that potential employers will seek out your credit score to find out how responsible you are. In this blog, we will check out how a credit score is calculated and how to get a good one. Stay with us until you get the answers to the questions.
What is a credit score?
A credit score is a three-digit number that falls somewhere between 300 and 900. The higher your number, the better your credit score is. However, your credit score can change over time based on your credit history and the amount of debt you owe.
As mentioned above, Canadian credit scores range between 300 and 900. Each potential lender will have its own standards as to what credit scores are acceptable.
Credit score range from Equifax:
- Scores from 760 to 900 are considered excellent
- Scores from 725 to 759 are very good
- Scores from 660 to 724 are good
- Scores from 560 to 659 are fair
- Scores from 300-559 are poor
People with a good credit score in Canada have access to far better interest rates across all credit products. Ideally, you try your best to get the highest score possible, but a credit score of at least 660 generally makes you eligible to apply for a variety of loans and credit cards.
How is a credit score calculated?
In Canada, there are two main credit bureaus — Equifax and TransUnion — that are responsible for calculating individuals’ credit scores. These companies are allowed to collect data about your financial activities, then calculate your credit score, depending on five factors.
- Payment history
- Credit utilization
- Credit history
- Public records and/or credit mix
- Credit Inquiries
Your payment history is the most crucial element, accounting for 35% of your credit score. Payment history is a record of all your current and recent debts, and whether you made your payments on time. If not, it shows how late you were, if you missed payments entirely or if an account went to collections. This negative data stays on your payment history record for years. So always make your payments on time which helps you to keep up a good payment history.
Credit utilization, which accounts for 30% of your credit score, measures what percentage of your total available credit you’re using at any given time.
For example, imagine you have a couple of credit cards and a line of credit with a total debt of $14,000 and a combined limit of $20,000. Your debt-to-credit ratio would be 70%.
In general, experts recommend you keep your credit utilization ratio under 35%.
Read more: 15 Financial Terms Everyone Should Know
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