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Credit Scores: What? Why? How?

What Is A Credit Score?

A credit score is a three-digit number, typically between 300 and 900, which is designed to represent your credit risk, or the likelihood you will pay your bills on time. It uses a formula calculated from your payment history, the number of credit accounts and their account balances, how long you have used credit, what different types of credit you have (credit mix), how much of the credit available you have used (credit utilization), how often you apply for a new credit card or loan, and if you have been in bankruptcy or collections.

Who Are The Credit Reporting Agencies In Canada?

The two Canadian credit reporting agencies are Equifax and Transunion Canada. Your credit account holder may report to one of these are both. Expect your payments on credit cards, loans (for vehicles, personal loans, lines of credit), purchase agreements (furniture, musical instruments, cell phones) to be reported to the credit reporting agencies.

How Do I Get My Credit Score?

Equifax will provide your personal credit score free of charge. You need to complete a request form, including a photocopy of 2 pieces of government-issued identification, mail the request, and wait for delivery of your report.

Transunion Canada also provides your personal credit score free of charge, through many of the online banking programs (i.e. Scotiabank, RBC). On your online banking dashboard, select my Transunion credit score.

Note: personally checking your own credit score will not affect the score

What Is A Good Credit Score?

Equifax Credit Scores & Ratings



300 to 560


560 to 659


660 to 724


725 to 759

Very Good

760 to 900


TrasnunionCredit Scores & Ratings



300 to 692


693 to 742


743 to 789


790 to 832

Very Good

833 to 900


Why Do I Need A Good Credit Score?

Most people rely on credit to purchase a house, a vehicle, use the convenience of credit cards or invest in a business (land, building, equipment, or working capital). It is much easier to qualify for loans or a credit card with a good credit score. If you have a higher credit score you may receive

  1. Better terms and availability on loan products –The borrower is likely to have access to most loan and credit cards and will receive the best terms, including higher limits, to finance their purchase

  2. Significant savings on interest rates – The borrower can get lower interest rates. For a large purchase, such as a house or car, a small difference in interest rate can save you thousands of dollars over the life of the loan

  3. Access to the best credit cards –With the best rewards and the lowest interest rates, which can result in significant savings

  4. Insurance discounts – The borrower may qualify for lower insurance premiums on homes or vehicles

  5. More housing options – Approval for a housing rental, since some landlords consider a tenant’s credit score to determine if the tenant is trustworthy

  6. Security deposit waivers on utilities – A utility company may consider your credit score to determine how likely you are to pay bills on time. A security deposit may not be required or lower to start utility services

How To Improve Your Credit Score

  1. Timely payment of bills

    1. Pay your bills on time

    2. Make at least the minimum payment, even if you cannot pay the full amount

    3. Contact the lender if you think you will have trouble paying a bill

    4. Don’t skip payments if a bill is in dispute

  2. Mind your credit limit

    1. Don’t go over the credit limit

    2. Try to use less than 35% of available credit. Increase your credit limit if necessary and use a lower percentage of available credit

  3. Length of credit history

    1. The longer the credit account is opened and used, the better your score. So don’t transfer all your old accounts to new accounts, since the new account is considered new credit.

    2. Consider keeping an older account open even if you don’t need it and use it from time to time to keep it active

  4. Limit the number of credit applications and credit checks

    1. Try and limit the number of requests for credit. If there are too many requests, lenders think that the borrower is urgently seeking credit or living beyond their means

    2. Limit the number of times you apply for credit. Some credit checks reduce your credit score

    3. If shopping for credit (i.e. purchase of car or house) get your quotes from different lenders within a two week period since the inquiries will be combined and treated as a single inquiry for your credit score

    4. Apply for credit only when you really need it

  5. Use different types of credit

    1. Credit scores are lower if you only have one type of credit product (i.e. credit cards only). It is better to have a mix: such as a credit card, a car loan, a line of credit


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