What is a Good Credit Score

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Credit Scores may be used to determine important financial factors in your life, such as whether you’ll be able to lease that dream vehicle, qualify for a mortgage or even land that new job.

Considering 71 percent of Canadian families carry debt in some form (think mortgages, car loans, lines of credit, personal loans or student debt), good credit health should be a part of your current and future plans.

What is a good credit score? What about a great one!?! Let’s take an in-depth look at the numbers and see who should be making decisions based on them.

How Credit Scores are Set

Canadian credit scores are officially calculated by two major credit bureaus: Equifax and TransUnion. They determine how risky it would be for them if you were in their shoes.

A report is generated for each individual containing personal information such as name/date of birth etc., followed by three critical digits, your score. This score consists of your ego score (found primarily through payment history), utility factor (from accounts currently open) and risk assessment value calculated based upon types of debt owed.

Tip: You can view sample credit score summaries from each bureau (see Equifax and TransUnion here) to get a sense.

What’s in a number?

In Canada, your credit scores generally range from 300 to 900. The higher the score, the better. High scores may indicate that you’re less likely to default on your repayments if you take out a loan.

Below you’ll see a general breakdown of credit score ranges and what each range means the ability to qualify for lending, such as a loan or mortgage.

Note that ranges can vary slightly depending on the provider, but you’ll typically see these are the credit score ranges.

  • 800 – 900: Congratulations! You have excellent credit. Keep reaching for the stars.
  • 720 to 799: You have outstanding credit! You should expect various credit choices to choose from, so continue your healthy financial habits.
  • 650 to 719: This is considered good to lenders. You may not qualify for the lowest interest rates available but keep your credit history strong to help build your credit health.
  • 600 to 649: This is fair credit. History of debt repayment will be essential to demonstrate your solid sense of financial responsibility.
  • 300 to 599: Your credit needs some work. Keep reading for some improvement suggestions below.

How to Go from Good to Great (or Bad to Good)

To borrow from Leo Tolstoy, all excellent credit scores are alike, but all bad scores are bad in their own way. Ideal scores are built on a similar set of healthy financial habits, but any number of factors can damage your scores. Luckily for us, the formula for good credit is fairly straightforward.

Many different issues can hurt your credit, such as:

  • Late or missed payments.
  • Too many (or too few) open credit accounts.
  • High credit card balances.
  • High balances on loans.Too many credit applications.

The first step toward improving credit health is avoiding getting trapped in the highs and lows of managing credit.

Heather Battison, vice president of TransUnion Canada, explains how consistency is critical: “The most important factor for building and maintaining your scores is to pay your bills on time and in full each month. This activity demonstrates your ability to manage credit responsibly and can positively impact your credit scores.”

It’s also key to remember that your payment history isn’t just about paying your credit card bill. “It also includes things like your cellphone bill,” says Trevor Gillis, associate vice president of account management at TD Credit Cards.

Gillis says building good scores is “based on using your credit card responsibly, which means making at least the required monthly minimum payment (if you can’t pay off the balance in full), making your payments by the payment due date and keeping your credit card utilization low.”

Beware of third-party companies that claim they can quickly boost your scores. According to the Office of Consumer Affairs, only your creditors can alter the information on your credit file. When it comes to building good credit, there are no shortcuts.

Here’s the good-to-great news: Improving your credit health can help you establish an overall healthy financial life.

Bottom line

Help keep your credit scores as healthy as possible by reviewing your credit reports regularly to ensure they’re accurate. Deciding to apply for a loan or credit card is a big deal – don’t let surprise scores get in the way of it.

There are ways to check your credit scores directly from TransUnion and Equifax. However, you’ll either be waiting for snail mail delivery (with the added risk of loss or theft in transit), or paying a fee for one-time online access (or a recurring cost for continued access).

Have questions about your score? Make an appointment with us today. We’ll help you create wealth through homeownership and get you on track to better credit. Score!

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