What is a Good Credit Score in Canada?

Credit scores are essential in the financial lives of Canadians, indicating their creditworthiness. Credit scores range from 300 to 900 and are based on a detailed credit history in a credit report.

Building a good credit score can feel like aiming for a high score in a game, with the top score being 900 in Canada. However, unlike a game, it takes years to build a good credit score, and it has a significant impact on your financial life.

A high credit score opens up many financial opportunities, which might not seem important when you’re young but can be crucial later when buying a home, leasing a car, or getting loans to start a business. A low credit score can affect you for years and take a long time to repair through smart budgeting and financial planning.

A key factor in your credit score is your payment history. Making payments on time improves your score, while late or missed payments hurt it.

Credit bureaus track and report this information closely. Your credit limit, a.k.a. the maximum amount you can borrow, also affects your score.

Another factor that helps maintain a good score is keeping a low credit utilization ratio (or only using a smaller percentage of your available credit). By understanding these components, Canadians can manage their credit health, keep a strong credit score, and access better financial opportunities.

So, what is a good credit score in Canada?

First, it’s important to know that Canadian credit scores can vary depending on who calculates them and which factors they consider most important. Each credit reporting agency and potential lender has its own guidelines, so your score isn’t the only factor, though having a higher score is better.

So, while different scoring models exist, generally, credit scores fall into these ranges:

• Scores below 560 are generally considered poor, which can make getting credit difficult or can lead to unfavourable loan terms.

• Scores between 560 and 660 are fair but can also give potential lenders enough pause to require more unfavourable loan terms.

• Scores from 660 to 724 are considered good.

• Scores from 725 to 759 are considered very good.

• Scores from 760 and up are considered excellent.

According to TransUnion, one of the main credit reporting bureaus in Canada, the average credit score in Canada is about 650, meaning the average Canadian has fair credit.

Credit scores above 660 usually mean you’re low-risk and likely to get approved for credit. The higher your score, the better the terms you can get, like higher credit limits or lower monthly payments.

But wait, what exactly is a credit score?

Okay, now that we’ve covered what is a good credit score in Canada, let’s explain what exactly a credit score is.

Credit scores in Canada are three-digit numbers from 300 to 900, reflecting your credit report. These scores help lenders assess your risk level. Before lending money or approving credit, financial institutions check your score to see how likely you are to repay loans on time and in full. And it’s not just lenders who use credit scores to check your financial responsibility—landlords and some employers use it, too.

In Canada, knowing your credit score and credit report is key to keeping your finances in good shape since your credit score shows how trustworthy you are with credit. Your score is based on things like your credit history, how well you pay your bills, and how much of your credit limit you use. Scores range from 300 to 900, with 300 being the lowest credit score and 900 being the highest or a perfect credit score. But really, anything over 660 is generally considered good.

One big part of your credit score is your payment history. Paying your credit cards, loans, and other bills on time boosts your score and shows lenders you’re reliable. How much of your credit limit you use also affects your score. Using credit wisely, like staying well below your limit, can help improve your credit score.

The two main credit bureaus in Canada are TransUnion and Equifax. The credit reports created by these Canadian credit bureaus detail your credit history. They include your borrowing activities, payment behaviour, outstanding debts, and credit inquiries.

You can view your credit history by getting a credit report from either Canadian credit bureau. By checking your credit report regularly, it can help you ensure accuracy and spot any errors on your report that could hurt your score.

What factors impact credit scores?

We’ve covered the basics of some of the factors that affect credit scores, but let’s break them down further and explore even more. These factors that affect your credit score include the number and types of accounts you have, your credit history, your credit utilization, your payment history, and your credit inquiries.

Number and types of accounts

This means how many different kinds of credit you have. Types of accounts include revolving debt (like credit cards and lines of credit) and instalment loans (like mortgages, car loans, personal loans, and student loans).

Having a mix of these accounts shows you can manage different kinds of debt. This factor accounts for about 10% of your credit score.

Credit history

Your credit history makes up about 15% of your score. This is how long you’ve had your credit accounts open. The longer your credit history, the better because lenders like to see that you have a track record of managing debt responsibly.

One tip here is to keep old credit cards open, even if you’re no longer using them. While it can be tempting to close them, having them on your account will help establish a longer credit history.

Credit utilization

Your credit utilization makes up about 30% of your credit score. It measures how much of your available credit you’re using.

For example, if your credit card limit is $10,000 and you have a $5,000 outstanding balance, your credit utilization ratio is 50%.

Experts generally recommend keeping this ratio under 30%—anything above that can start to lower your credit score.

Payment history

Your payment history accounts for 35% of your credit score. This is the most important factor because it shows how likely you are to pay back loans.

Your payment history is a record of your current and recent debts, such as lines of credit, loans, or credit cards, and whether you paid them on time, late, or missed payments altogether.

Making on-time payments and paying off debts in full shows creditors that you’re a low risk.

Credit inquiries

How many credit inquiries you’ve had within a certain amount of time makes up about 10% of your score. When you apply for a loan or a new credit card, a “hard inquiry” is recorded on your account.

Having too many hard inquiries on your report can decrease your credit score because it appears as though you’re having financial trouble and need more money, which means you’re now more of a risk to lenders.

Lenders look closely at your payment history, including any bankruptcies or foreclosures, and each of these other factors when deciding whether they want to loan you money.

And while these are key factors in calculating your credit score, they aren’t the only ones.

Financial institutions or lenders might also consider your income, living situation, and other factors to get a full picture of your potential risk.

Benefits of having a good credit score in Canada

When you have a good credit score, it can greatly improve your financial stability.

After all, it’s more than just a number; it opens up many financial opportunities. Here are some benefits you can enjoy:

Access to better interest rates

One of the biggest benefits of having a high credit score is getting better interest rates. Banks and credit card companies usually offer lower rates to people with good credit scores.

This can save you a lot of money over time, especially with long-term loans like a mortgage. The rule is simple: the higher your credit score, the lower your interest rate, and the more money you save.

Approval for mortgages and auto loans

A good credit score can greatly improve your chances of getting major loans. Whether you’re applying for a mortgage or buying a car, lenders check your credit score to see if you’re a good risk.

A high credit score shows you handle money well, making it more likely you’ll get approved for loans with better terms. This is important when negotiating interest rates for big loans like a mortgage or auto loan.

Better rental and employment opportunities

A good credit score can also help you when renting a place or applying for jobs.

Many landlords check your credit to see how likely you are to pay rent on time. In competitive rental markets, landlords often check credit scores during background checks.

A good score makes you look like a reliable tenant, and a strong credit score shows them you are financially responsible, which is a key trait they look for in tenants.

You can also use KOHO's new rent reporting system to increase your credit score!

How to check your credit score

Checking your credit score regularly helps you understand your standing and make any necessary budget adjustments to reach your higher credit score goals.

It’s also helpful to check multiple credit reports to know your credit range and where your score falls in Canada. Luckily, there are a few ways you can find your credit score.

• By visiting the TransUnion or Equifax websites and requesting your credit report and score

• Through apps like Borrowell or Credit Karma

• Through your financial institution if it offers free credit score checks

Getting a free credit score in Canada is simple, and because it counts as a “soft inquiry”, it won’t affect your score.

However, your credit score is just a quick reference. For a detailed look at your credit profile, you can order your credit report from TransUnion and Equifax.

Both allow you to access your report online, and they update it every month. You can also get your report by mail.

Your report will show all the accounts you’ve opened and closed in the last seven years.

Both reports can vary, so it’s best to request one from each credit bureau to make sure you’re getting all the information. You can request these free reports once a year.

Canada’s credit bureaus, along with many credit card companies and banks, also offer credit monitoring services. These services alert you when there are updates to your credit report or score, like a credit inquiry.

These services can be really useful if you think you’ve been a victim of fraud or a data breach. It allows you to know quickly if someone is trying to apply for credit in your name.

How to achieve that high score

While having an excellent credit score is the goal, it’s important to remember that your current score isn’t everything. If your score is lower than you’d like, taking steps to start building your credit score now can help improve it over time.

This way, when you need a good score to buy a car or a home, you’ll be in a better position to get the best terms.

Here’s what you can do to make your credit score go up in Canada and achieve that high score:

Make payments on time

One of the simplest ways to improve or build your credit score is to make consistent, on-time payments over time.

Lenders love seeing this because it shows consistency, dependability, and a good payment history.

Late payments not only rack up extra interest charges but also hurt your credit history, but missing payments can seriously damage your credit score. If you’ve always paid your bills on time, that’s fantastic!

But, if you’ve missed some, you can improve your situation by staying on top of payments and making at least the minimum payment on time.

However, while paying the minimum amount won’t hurt your credit score, it can affect your score from a credit utilization perspective.

This is because when you’re only making the minimum payments, you’re not actually paying down what you owe. That’s why, whenever you can, try to pay more than just the minimum payment.

This way, you’re not only paying your bills on time, but you’re also reducing your credit utilization. Remember, the rule of thumb for good credit utilization is at or below 30%.

Consider a credit limit increase

And speaking of your credit utilization ratio, another thing you may want to consider is applying for a credit increase. This is because improving your debt utilization ratio is one of the quickest ways to boost your credit score.

While the best way to do this is by paying down your balance, you can also accept offers to increase your credit limit. Here’s why. Say your current credit limit is $5,000, and you have $2,500 of debt on it.

That puts your debt utilization ratio at 50%—much higher than the ideal 30%. Now, say you received an offer to increase your credit limit to $8,000.

With your current $2,500, that instantly drops your debt utilization ratio down to 31%! After a couple of payments, you’ll be right back under the ideal 30% zone.

Now, while this method can be a faster way to increase your credit score, you need still to be careful. With a higher credit limit, it can be very tempting to go out and spend more money, putting you right back where you started.

Therefore, you should only consider increasing your credit limit if you can trust yourself to not be tempted by that higher credit limit.

Pay off your debt

I’m sure this one goes without saying, but paying off your debt is a surefire way to improve your credit score.

Having a lot of debt can make lenders hesitant to give you more money, so it’s important to work on paying off your debt, even if it seems difficult.

You can start by crediting a budget. Use this budget to track all of your monthly income, including any side hustles or government tax credits.

Then, write down everything you need and want to spend money on each month.

Once you have a completed list, you can look for places where you can cut back on spending, and then you can put that extra money toward paying off your debt.

There are two ways to tackle debt:

1. Avalanche method: Pay the minimum on each debt, then use any extra money to pay off the debt with the highest interest rate.

2. Snowball method: Pay off the smallest debt first, then the second smallest, then the third smallest, and so on.

The snowball method can feel satisfying because you see debts disappear quickly, but the avalanche method saves you more money in the long run by tackling the highest interest first.

Keep old accounts open

Remember how we mentioned that your credit history makes up about 15% of your score? The longer your credit history, the better.

Do you still have a credit card you first opened back in college? After you pay it off, don’t close it!

A longer credit history can make you look more reliable to lenders if you have a track record of managing your debt. This can lead to higher credit limit offers in the future.

How to improve your credit score with KOHO

Want to boost your credit score but unsure where to start? Here are three ways to build or rebuild your credit using the great features of your KOHO account.

1. Use KOHO’s Credit-Building tool

The easiest way to improve your credit score is by using KOHO’s Credit Building tool. In fact, KOHO credit-building customers see their credit score increase by an average of 22 points in just three months!

Building your credit with KOHO is an affordable way to take out a credit line and build a solid credit history with KOHO. You can sign up in the KOHO app in just a few seconds.

Once you’re signed up for Credit Building, you just need to:

1. Keep enough money in your KOHO account to cover the tool’s small monthly fee.

2. Make your Credit Building payment on time and in full each month.

Then, KOHO will report all your on-time payments to Equifax for you. It’s that simple.

By making your payments on time each month, you’ll gradually improve your credit score. These regular, timely payments lead to a higher credit score, and you can track your progress in the KOHO app with its free credit score checks.

Remember, missing credit-building payments can hurt your score just like missing any other credit payment. But as long as you stay on top of your monthly payments, KOHO’s Credit Building can help you improve your score over time.

2. Set your bills on auto-pilot with your KOHO account

And we’re back to remind you again how missed and late payments can really hurt your credit score. We know we keep saying it, but repetition helps with memory, right?

If you have trouble remembering to make your payments on time, setting up automatic payments can help.

The good news? You can set up automatic withdrawals and pre-authorized debits from your KOHO account. This is great for automating payments like car insurance and utility bills.

Automatic payments lower the risk of missing a bill, which is then reported on your credit history, hurting your credit score.

For other recurring payments not supported by KOHO, you can still automate some bill payments. You can use KOHO’s bill pay feature to pay credit cards, loans, and other debts right from your phone, saving you from any late or missed payments.

If you’re uncertain about setting up automatic payments but have trouble remembering due dates, consider setting up monthly reminders to your email or mobile phone.

Then, when you get a reminder, just log into the KOHO app, pay your bill in full, and watch your credit score improve over time.

3. Make the most of KOHO’s budgeting features

Finally, you can use the great budgeting features in your KOHO account to help build your credit score.

Budgeting might not seem important for building credit, but not having a good budget often leads people to rely too much on credit. If you struggle with budgeting, you might use credit cards for most bills, leading to high-interest debt that’s hard to pay off. This debt can lower your credit score over time.

A good budget helps you manage your money better, pay off existing debts, build an emergency fund, and avoid new debt.

Your KOHO account has features to help you manage your money, like KOHO Insights, the KOHO budgeting tool, and a budget template. By exploring these tools and creating a plan, you can take control of your budget and start improving your credit score today.

Make credit scores work for you with KOHO

KOHO is a great tool for managing your budget and setting up payments, helping you handle your credit obligations promptly and consistently.

By understanding your personal finances, you can take the right steps to improve your credit score over time and stay on top of your financial life.

If you’re looking for a place to start, try KOHO’s Credit Building tool today, which allows Canadians to build their credit history for just $10 a month.