What credit score do you start with in Canada?

Where does my score come from?

For the majority of Canadians, it starts with credit cards. As soon as you swipe your credit card for the first time, your credit card provider, utility companies and any other creditors will begin reporting your behaviour to the big credit bureaus. Within about six months, these bureaus will have enough data on you to fill out a credit report and calculate your first credit scores.

The good news is that you won’t start at 300, the bottom of the scale. That’s reserved for people who have completely wrecked their reputation with missed payments and bankruptcies.

The reality is that you start off with no score at all.

When the formula is first applied, your credit score will probably land somewhere in the fair range, right around the middle. You haven’t had time to do much harm but you also haven’t proven yourself, either.

You won’t get access to sizable loans and good interest rates until you reach the upper echelons of the scale. But you can boost your credit score with free credit monitoring in a flash.

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What goes into my score?

While Canada’s two big credit bureaus — Equifax and TransUnion — have access to slightly different information and use slightly different calculations, they focus on the same five factors:

Payment history (35%)

This is the single most important factor in determining your creditworthiness. Every missed payment, from credit cards to phone bills, can stain your credit report for up to six years. Be sure to make payments on time and in full if you want to raise your credit score.

Credit utilization (30%)

If you’re borrowing close to your limit, you’re hurting your score more than you may know.

Credit utilization is the ratio of credit used versus the total credit available to you. So if you’ve racked up $700 of debt on a card with a $1,000 limit, you would have a 70% utilization rate on that card.

For a good score, you’ll want to keep your total utilization across all of your balances below 30%.

Credit length (15%)

Lenders want to see a long history of responsible borrowing. If you’re just starting out, use your first card with this future goal in mind.

And make sure not to cancel any cards without good reason. Having an old card on file, even if you don’t use it anymore, shows lenders that you’re an experienced borrower.

If you're finding that you're struggling with a credit card, consider a balance transfer card or debt consolidation as options. Closing a longstanding credit account should be a final resort.

Credit mix (10%)

Lenders will be pleased to see that you’re a whiz with a credit card — but what about car loans, mortgages, student loans and lines of credit? A diverse borrowing history can show lenders that you’re responsible with all kinds of loans.

Hard inquiries (10%)

When you apply for a new loan or credit card, lenders will peruse your financial history to see if you’re a safe bet or not.

Too many of these checks, called hard inquiries, in a short period of time would suggest that you’re churning credit cards, using new loans to cover old debts or you’re broke and desperate for cash.

How do I monitor my score?

With so many factors affecting your score from month to month, it can be hard to tell how much of an impact your efforts are making. Thankfully, a number of free online services allow you to monitor your progress.

One popular option in Canada is Mogo, which provides access to your Equifax credit score for free, as well as a suite of services to improve your financial health (including fraud protection).

By keeping a close eye on your credit, you’ll be able to get your score in the green and unlock money-saving rates that will pay off for years to come.