Understanding the average Canadian credit score is essential for anyone looking to make informed decisions about their financial future. A good credit score can affect your ability to secure loans, obtain favourable interest rates, and even influence employment and housing opportunities. In this article, we will delve into the average Canadian credit score, the factors that affect it, and what a good credit score looks like. We will also discuss how Canadians can improve their credit scores and the importance of maintaining good credit. By the end of this article, you will have a clear understanding of where you stand in comparison to the average Canadian and how to work towards improving your financial health.
What is a Credit Score?
A credit score is a three-digit number that gives a glimpse into a person's financial trustworthiness based on their credit history. In Canada, credit scores range from 300 to 900, with showing an increasingly lower risk for lenders. Credit scores help lenders, landlords, and employers make wise decisions about an individual's financial character and potential for regular payments and financial soundness.
You can check your credit score for free with KOHO and receive alerts about changes to your credit report without impacting your score.
How are Credit Scores Calculated?
Credit scores are calculated using a variety of factors from your credit report, including:
Payment history: Timely repayments on loans and credit cards account for approximately 35% of your credit score.
Credit utilization: The amount of credit you're using compared to your available credit limits accounts for roughly 30% of your score.
Length of credit history: The age of your oldest and newest accounts, as well as the average age of all your accounts, contributes to approximately 15% of your score.
Types of credit: A mix of various credit types, such as mortgages, auto loans, and credit cards, accounts for around 10% of your score.
Recent credit inquiries: Hard inquiries, which occur when you apply for new credit, make up about 10% of your credit score.
What’s Credit History?
Credit history is a record of your past financial behavior, including loan and credit card repayments, outstanding debts, and any bankruptcies or collections. Lenders use this information to evaluate your creditworthiness and determine the likelihood of you repaying future loans. A positive credit history, marked by consistent, on-time payments and responsible credit use, can contribute to a higher credit score.
Average Credit Score in Canada
The average credit score in Canada is around 680, which is deemed as "good" on the credit score scale. Everyone's scores can range widely based on their age, income, and spending habits, so it's essential to note that this average doesn't necessarily apply to every person. While the benchmark benchmark offers a guideline, it's still important to take into account any individual financial factors that could significantly affect your score.
How to Build Credit
Improving your credit score is a crucial aspect of maintaining good financial health. Here are some strategies to help build and maintain a strong credit score:
Make timely payments: Consistently paying your bills on time is one of the most significant factors in determining your credit score.
Keep credit utilization low: Aim to use no more than 30% of your available credit limit to maintain a healthy credit utilization rate.
Maintain a mix of credit types: Diversify your credit portfolio by having a combination of installment loans (e.g., auto loans or mortgages) and revolving credit (e.g., credit cards).
Limit hard inquiries: Only apply for new credit when necessary, as each hard inquiry can temporarily lower your credit score.
Monitor your credit report: Regularly review your credit report for errors or inaccuracies and dispute any incorrect information to ensure your score accurately reflects your credit history.
Consider a credit-building tool: Services like KOHO's Credit Builder can help you establish or rebuild your credit history through regular, reported payments without the risks of traditional credit cards.
In conclusion, understanding the average Canadian credit score and the factors that influence it is key to unlocking a healthier financial future. With responsible financial habits and a commitment to building and maintaining a good credit score, you can open the door to a more prosperous life and reap the rewards of having an impressive credit rating.