Is a 604 credit score good or bad?

If you’ve got a 604 credit score, you might be wondering if that’s a good score or a bad score. According to Equifax Canada, one of the country’s two major credit bureaus (organizations that issue credit scores), a 604 credit score falls within the range generally considered to be a fair to decent credit score.

So, what does that mean really for your financial status and future? Let’s break it all down.

Credit scores in Canada

Your credit score serves as a numerical summary, typically falling within a range of 300 to 900, amalgamating a wide array of financial data. It’s influenced by multiple factors and acts as a comprehensive reflection of your financial health. Put simply, the higher your score, the more favorably credit bureaus and potential lenders perceive you. A robust credit score opens pathways to numerous financial advantages, such as access to lower-interest loans, improved employment opportunities (especially in sectors like financial services, where employers often scrutinize credit scores during background checks), and an increased likelihood of securing a rental property.

Equifax categorizes credit scores as follows:

• Scores ranging from 300 to 579 are classified as poor.

• Scores ranging from 580 to 669 are categorized as fair.

• Scores ranging from 670 to 739 are considered good.

• Scores ranging from 740 to 799 are viewed as very good.

• Scores ranging from 800 to 900 are deemed excellent.

Understanding where your score falls within this spectrum is crucial in gauging your financial standing and potential eligibility for various financial products and opportunities.

The average credit score in Canada, according to TransUnion, is 650. If you’ve got a credit score of 604, that means you are a little shy of what is considered to be a good score. There is room for improvement but it is also far from a terrible score.A 604 credit score is considered is often the baseline that people shoot for when trying to improve their credit. As a general rule a score above 600 is seen favorably and a score under 600 is seen less favorably. And even at this high score level, there are still things you can do to improve your score and to help keep it at that high level.

As you can see, a 604 credit score is below the average in each of these cities which means there is room for improvement and some work. There are several reasons why your score can rise and fall even as you try to maintain a high score, like many of these scores.

Factors that negatively impact your credit score

There are several factors that decrease your credit score over time. The credit bureaus collect information on each Canadian to help them determine credit scores, and some of the things an individual does can cause a score to decrease. This includes:

Late or missed payments

This is a big one. Failing to make a loan payment, be it for a credit card or any other financial obligation, can have a significant negative impact on your credit rating. A substantial 35% of your credit score hinges on your capacity to consistently meet your loan obligations. Therefore, it's crucial to scrutinize your credit history for any past instances of missed payments.

A high utilization ratio

This is an elegant means of expressing that you're nearing the upper limit of the credit available to you. For instance, if you possess a credit card with a generous limit of $10,000 and you maintain a balance of $8,000 on it, your utilization ratio stands at 80%, which is considerably elevated. To enhance your credit score effectively, it's advisable to adhere to the practice of maintaining your utilization ratio below 30%.

Age of credit

The age of your credit accounts holds significant weight as a key factor. This underscores the importance of reviewing your credit history thoroughly before considering account closures. A well-balanced combination of both newer and well-established credit accounts serves as evidence that you possess a lengthy track record of responsible credit management. The age of your credit lines can influence up to 15% of your overall credit score.

Past negative credit events

Having experienced prior credit challenges, such as bankruptcy, collection problems, or other adverse notations on your credit report, will lead to a detrimental impact on your credit score. Although it is feasible to rehabilitate your credit following such events, these entries on your credit record contribute to a 10% reduction in your overall credit score.

Credit Inquiries

Two categories of credit inquiries exist: soft and hard inquiries. Each instance of accessing your credit file is documented as an inquiry. A hard inquiry can result in a reduction in your credit score, while a soft inquiry has no impact. Hard inquiries occur exclusively when you seek to acquire a new line of credit. It is advisable to restrict the number of credit products you apply for to minimize the quantity of hard inquiries recorded on your credit file. Inquiries account for 10% of your overall credit score.

How to improve your 604 credit score

Lenders scrutinize credit scores to determine the risk associated with lending money to an individual. A higher credit score typically signifies responsible financial behavior, showcasing a history of timely payments, low credit utilization, and a manageable debt-to-income ratio. This portrayal of financial responsibility makes you a more attractive prospect to lenders. Consequently, it enhances your chances of not only qualifying for loans but also being offered favorable interest rates and terms.

Conversely, a lower credit score may present challenges when seeking loans, potentially leading to higher interest rates, stricter terms, or even rejection of loan applications. It indicates a higher risk in the eyes of lenders, stemming from missed payments, high credit card balances, or other unfavorable financial practices.

Therefore, knowing and actively managing your credit score is pivotal in navigating the borrowing landscape. Regularly monitoring your credit report, addressing any discrepancies, and taking steps to improve your score, such as making timely payments and reducing debt, can significantly impact your ability to secure loans on favorable terms. Ultimately, a good credit score not only expands your access to credit but also saves you money in the long run by unlocking better borrowing opportunities.

Now that you have a better understanding of credit scores in Canada and their functioning, let's explore how you can enhance your own score, even if it's currently at 604 or at a similar level.

1. Timely Bill Payments: The punctuality of your payments has a significant impact on your credit score. Ensure that you promptly pay all your bills, including credit cards, loans, and utilities. Late or missed payments can harm your credit, so consider setting up reminders or automatic payments to maintain a solid financial track record.

2. Reduce Credit Card Balances: High credit card balances relative to your credit limit can negatively affect your credit score. As mentioned earlier, it's advisable to aim for a credit utilization ratio below 30%. Dedicate efforts to pay down existing balances and avoid maxing out your credit cards.

3. Diversify Your Credit Portfolio: Develop a well-rounded mix of credit types, including credit cards, loans, and a mortgage, to have a positive impact on your credit score. However, exercise caution when taking on new credit, ensuring that you can manage it responsibly. Avoid applying in quick succession, take a gradual approach to credit.

4. Maintain a Long Credit History: Understand that building credit is a long-term effort. The length of your credit history is a significant factor. Keep older accounts open, even if they are not actively used, as they contribute to the average age of your accounts. Closing older accounts can shorten your credit history, potentially resulting in a lower credit score.

5. Regularly Monitor Your Credit Report: Obtain a free copy of your credit report from major credit bureaus like Equifax or TransUnion at least once a year. Review it for inaccuracies, such as incorrect account details or late payment records, and promptly report any discrepancies for correction.

6. Limit New Credit Card Applications: Remember that each new credit application results in a hard inquiry on your credit report, which can temporarily lower your credit score. Apply for credit only when necessary and consider spacing out applications to minimize their impact on your score.

7. Establish a Positive Payment History: If you have limited credit or a thin credit file, consider alternative methods for building credit, such as getting a secured credit card or becoming an authorized user on someone else's credit card. Make small purchases and consistently pay off your balances to establish a positive payment history.

8. Seek Professional Guidance: If you're facing financial challenges or credit issues and need personalized assistance, it's a wise idea to seek help from a reputable credit counseling agency. They can provide valuable insights, assist with budgeting, and offer strategies to improve your credit score.

9. Build credit using a credit building tool: There are certain financial products that are designed to help you build credit over time. One of those is KOHO’s Credit Building. For as little as $7 a month, you can use this service to help establish positive credit history, which has been proven to increase scores over time, assuming on-time subscription payments.

KOHO offers three different ways to build your credit, so you’ve got options. All three options come with access to a Financial Coach and your credit score, on demand.

Understanding your credit score is crucial when considering various types of loans, whether it's for a mortgage to secure a home, a car loan to purchase a vehicle, or a line of credit for financial flexibility. Your credit score serves as a pivotal factor that lenders heavily rely on to evaluate your creditworthiness. Essentially, it's a measure of your financial health and reliability in repaying borrowed funds.