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What is a “good” credit score?
In Canada, credit scores range from 300 to 850. In general, a score between 660 and 720 is considered “good” and should give you access to most financial products at decent interest rates.
The country’s two main credit reporting bureaus, Equifax and TransUnion, each have their own scoring models. As a result, your Equifax score and your TransUnion score may be a little different.
Here’s how the two models compare:
Remember, these ratings are just a guide, and lenders will often use other criteria to decide whether you’re a safe investment.
If your score is lower than 660, you should take steps to improve it before you make any major financial decisions, like applying for a mortgage. When it comes to big loans, even a slightly better interest rate can save you thousands.
How to get a “good” credit score
Here are five steps you can take to get your credit score up into “good” range — and beyond.
Step 1: Understand what affects your score
There are five main elements that contribute to your score:
- Payment history (35%)
Do you have a solid record of making your payments on time?
Even a single late or missed payment can cause your credit score to drop and stain your credit history for up to seven years.
Payment history is the most heavily weighted aspect of your credit score, so it’s important to make your payments on time each month.
- Credit utilization ratio (30%)
Your credit utilization ratio is the amount of credit you’re currently using divided by the total amount of credit you have available, expressed as a percentage.
Ideally, your utilization ratio should be less than 30%.
Let’s say you’ve only got one credit card with a $5,000 limit and no other loans or lines of credit. In this case, you should try to keep your debt below $1,500 at any given time.
If you’re able to pay off all of your credit card balances in full each month, that’s even better.
- Credit length (15%)
The bureaus want to see a long history of responsible borrowing. The best way to maintain your credit length is to avoid closing old credit card accounts, even if you don’t use them very often.
If you do need to cancel a card, try to start with the one you opened most recently.
Closing one of your older accounts could shorten your credit history and cause a dip in your score.
- Credit types (10%)
The number of different types of credit you have — sometimes called your “credit mix” — plays a small role as well.
Using a variety of credit products, like credit cards, auto loans, mortgages and student loans, shows that you’re able to manage payments in different scenarios.
However, your creditors may not always report every account to every credit bureau. If you’re hoping to diversify your credit by opening a new account, make sure to check whether the lender will report it first.
- Hard inquiries (10%)
Each time you apply for new credit, like a loan or credit card, the lender will pull your credit history to check out your score. This is called a “hard inquiry,” and it will decrease your score by several points.
The drop in your score from a hard inquiry is only temporary, but it’s a good idea to avoid stacking up multiple hard inquiries in a short amount of time. That makes it look like you’re desperate for cash.
Try to hold off on applying for additional credit products until your score recovers from the drop.
Step 2: Monitor your score
Now that you understand what determines your credit score, you should get into the habit of checking it on a monthly basis.
The Canadian service Borrowell lets you view your Equifax score for free whenever you want and also gives you personalized feedback on how you can improve it based on your credit history.
Any time your score drops, Borrowell will send you an alert so you can get ahead of the problem before it does any serious damage.
Signing up only takes three minutes and won’t hurt your credit. In fact, some Borrowell users have seen their score improve by more than 100 points in just a few months.
Step 3: Open a secured credit card
Standard loans and credit cards can help you prove your creditworthiness, but if you don’t have a score yet or your score is too low to qualify, you’ll need a specialized product.
A secured credit card is a low-limit card that requires a deposit up front, usually one or two times your credit limit. Companies are willing to give these to just about anyone, because if you don’t pay back what you borrow, the card issuer will just take your deposit.
As long as you use your card regularly and pay off your balance on time and in full each month, your payment history will improve and so will your credit score.
After six months you can ask for a higher credit limit, which will bring down your credit utilization ratio.
Step 4: Take out a credit builder loan
A credit builder loan is another low-risk financial product specifically designed to help you boost your credit rating.
Unlike a normal loan, you don’t hold on to the amount you “borrow.” The balance of your loan will be held in a bank account while you make your monthly payments, and you won’t have access to the money until the loan is completely paid off.
Credit builder loans can help boost your payment history and credit mix. Paying off a credit builder loan will also leave you with a solid bundle of savings, which you can then stash in a high-yield savings account or invest for the future.
Step 5: Report your rent payments
A history of punctual rent payments can also help to increase your score if your landlord is reporting them to one or both of Canada’s credit bureaus.
Find out whether your landlord reports your rent payments, and if they don’t, ask whether it would be possible for them to start.
Landlords are not obligated to report payments and in some cases it may not be worth it for them to do so, but it doesn’t hurt to ask.
If they say no, you also have the option of reporting your rent on your own through a third-party service. These services usually charge fees though, so you’ll need to decide whether the boost to your credit score is worth the price.
How to get a “very good” or “excellent” score
Having a “good” score doesn’t mean you should stop trying to build your credit. Now that you have access to better products and rates, you can use them to access even better ones.
For example, taking out a personal loan at a low interest rate will help to diversify your credit mix and improve your payment history.
Likewise, increasing the limit on your credit cards will bring down your credit utilization ratio as long as you make your payments on time and in full.
Just remember to check your credit score every month, and if you’re using Borrowell, follow its advice any time your score goes down.
Soon enough you’ll have a score that will leave lenders swooning.