Understanding Your Credit Score

A credit score is a numerical representation of your creditworthiness—how likely you are to repay borrowed money. In Canada, scores range from 300 to 900.

Score ranges: - 300-559: Poor - 560-659: Fair - 660-724: Good - 725-759: Very Good - 760-900: Excellent

Who calculates it: Canada has two main credit bureaus: - Equifax: Uses scores from 300-900 - TransUnion: Uses scores from 300-900

Lenders may check one or both bureaus. Your scores can differ slightly between them.

1. Payment History (35%) The biggest factor. Paying on time every time is crucial. - Late payments stay on your report for 6 years - Even one 30-day late payment can drop your score significantly

2. Credit Utilization (30%) How much of your available credit you're using. - Keep it under 30% for best results - Under 10% is even better - Example: $3,000 used of $10,000 limit = 30%

3. Credit History Length (15%) How long you've had credit accounts. - Older accounts are better - Don't close your oldest credit card - Average age of all accounts matters

4. Credit Mix (10%) Having different types of credit. - Credit cards (revolving credit) - Loans (installment credit) - Mortgage - Don't open accounts just for mix

5. New Credit Inquiries (10%) Recent applications for credit. - Hard inquiries lower your score temporarily - Multiple inquiries in a short time can hurt more - Shopping for mortgages/auto loans? Multiple inquiries within 14-45 days count as one

Credit cards have a major impact on your score—for better or worse.

Positive impacts: - On-time payments build payment history - Low utilization shows responsible use - Long-held cards increase credit age - Having cards adds to credit mix

Negative impacts: - Late or missed payments hurt significantly - High balances increase utilization - Applying for many cards creates inquiries - Closing old cards reduces history length

The ideal credit card strategy: 1. Pay full balance every month (or at least on time) 2. Keep utilization under 30% 3. Don't apply for too many cards at once 4. Keep old cards open even if unused 5. Use cards regularly so they're not closed for inactivity

You should check your credit score regularly—and it's free!

Free options in Canada: - Borrowell: Free Equifax score, updated weekly - Credit Karma: Free TransUnion score, updated weekly - Mogo: Free Equifax score - Your bank: Many banks now show free scores

Your credit report: You're entitled to one free credit report per year from each bureau: - Equifax: equifax.ca - TransUnion: transunion.ca

Does checking hurt your score? No! Checking your own score is a soft inquiry and has no impact. Only hard inquiries from lenders affect your score.

Myth: Checking your score hurts it Reality: Soft inquiries (checking yourself) don't affect your score.

Myth: Carrying a balance builds credit faster Reality: You build credit just as well by paying in full. Carrying a balance just costs you interest.

Myth: Closing cards improves your score Reality: Usually the opposite—it reduces your available credit and credit history length.

Myth: Income affects your credit score Reality: Income isn't part of the score calculation. High earners can have poor credit and vice versa.

Myth: All debt is bad for your score Reality: Responsibly managed debt (like a mortgage or card paid on time) can improve your score.