What Is A Credit Score?
What is a credit score? A credit score is a 3-digit number that allows lenders to determine a potential borrower’s credit risk—the risk they run of not paying back their credit cards or loans. Canadians typically cannot borrow money or receive credit of any kind unless they have a solid credit score. Canada’s two national credit bureaus, Equifax and TransUnion, create credit scores and credit reports based on the information they receive about each borrower from their lenders.
What Is the Credit Score Range Canada Uses?
Canada operates with a credit score range between 300 and 900. The lower your score, the less likely you are to be approved for a credit card or loan. If you do manage to qualify for a credit card or loan despite a low score, the interest rate you receive will likely be high.
Conversely, the higher your credit score, the more likely you are to be approved for a credit card or loan, and the lower the interest rate will likely be. Good credit can also help you rent an apartment, get a better job, get approved for insurance coverage at a lower premium and get a better plan for your cable, phone or utilities.
Consumers with excellent credit will likely have no or very few late payments in their credit report, will regularly pay off their balances in full, and will have a low credit utilization across all their lines of credit. Those with excellent credit enjoy rapid approval for their credit card and loan applications, as well as the lowest interest rates available, high credit and loan limits, and access to premium credit card benefits. In other words, all the financial doors are open to Canadians with excellent credit scores and banks roll out the red carpet to get their business. The median credit score in Canada is 749, which means 50% of the population has excellent credit.
*note that credit score ranges in this article are modeled on the Equifax Risk 2.0 scoring model. Designations are subjective and can vary by credit bureau and credit issuer.
Consumers with a credit score in this range still enjoy some of the best financial products and interest rates available. This credit score means you are generally financially responsible: Canadians who sit in this credit score range make most of their payments on time with only the occasional late payment on rare occasions. Their credit card utilization is pretty low given the amount of credit they have available. Those with scores in this range are unlikely to have difficulty obtaining most credit products and loans.
You still have a lot of credit options at the ‘average’ credit score evaluation, but borrowers on the lower end of this range will certainly experience higher interest rates from lenders. Those on the mid to lower end probably have been late on their payments multiple times to more than one lender and may have defaulted on a loan at some point.
Below Average (575-659)
Borrowers with below average credit will face higher interest rates for the lines of credit they are approved for, which can cost quite a bit of money over time. They also are not eligible for the more lucrative credit cards that provide accelerated levels of cash back and rewards.
If you’re in this credit score range, you unfortunately have a significantly damaged credit history. Perhaps you have defaulted on multiple loans, your debt is very close to your credit limit, or you have declared bankruptcy, which stays on your credit report for at least seven years. In this range you will have a difficult time obtaining credit or getting approved for a loan.