What is a Good Credit Score

what is a good credit score

Everyone should know their credit score, but for many there isn’t a reason until it’s needed. Whether that’s for a personal loan, car loan or when you’re thinking of a new home, it’s almost inevitable that many will need to look into how their credit rating looks if they hope to get some kind of loan. The trouble with only being aware of your score when it’s needed is that it isn’t being monitored, and it takes time and focus if you want to improve it for when it matters, like taking a loan.

A big part of having a good credit score starts with knowing what yours might be, and taking the necessary steps to improving it. Most of the time it isn’t difficult, but it does pay to know the right moves to make if you want to have a good credit score.

What is a Credit Score

To keep it simple, this is a number between 300 and 900 in Canada that suggests whether you might be a good candidate for repayment if you were requesting a loan or other types of credit. This is sometimes referred to as creditworthiness.

A few of the main attributes that make up this score include payment history, amount of debt, and the length of your credit history. A higher score suggests you are more creditworthy and often influences what kind of interest rates that lenders might offer to you.

Credit Score factors

A credit score is a sum of the average by the main credit bureaus in Canada: Equifax and TransUnion.

The different parts of a credit score’s main criteria include the following.

  • Payment History – your ability to make payments on time
  • Amounts Owed – any outstanding debt you may have
  • Length of Credit History – the age of the accounts on your credit profile
  • Credit Mix – different types of accounts (loans, credit cards, mortgage)
  • New Credit – related to new accounts and recent inquiries for credit

While creditors will typically look at the credit score when considering applicants, there are other considerations such as debt to income ratio (DTI), income and other factors involved.

Top Ways to Avoid Damage to Your Credit Score

  1. Do not miss payment (ever!)
  2. Do not overspend using credit (keep under 30% of available credit limit)
  3. Do not rely only on credit cards or one type of credit to build your credit history
  4. Do not apply for credit too frequently (it can cause hard inquiries and impact your score)
  5. Think twice before closing credit cards that have a positive credit history (it can shorten your history)

What is a Good Credit Score in Canada

While the average Canadian credit score is 660, a good credit score would be a rating of 660 to 724 with Equifax, and from 720 to 780 with TransUnion. Having a credit rating of 700 to 720 or better usually puts you in a much better position to be offered good interest rates for a personal loan. Those with a credit score of 740 to 799 are considered to have a very good score, and a score of 800 or higher would be considered excellent. If your credit score is below 700 then creating a plan to help improve it is a wise move for the future.

Over the past decade the average score has increased by about 20 points, which might be tied to improvements in credit utilization, credit card debt and delinquency rates, according to some experts.

According to a variety of sources it is said that a credit score represents a look at a person’s creditworthiness. This helps lenders to determine what level of risk a potential borrower might represent and the likelihood of being paid in full (principal and fess) if they were to issue someone a loan.

Credit Score vs. Credit Rating

Your credit score is a number from 300 to 900 that ‘grades’ your personal finances from history to activity. It’s a way of scoring how well you manage money and part of your credit profile.

This can be valuable to banks or private lenders for determining if they were to borrow to you, what sort of risk you might be and how likely they’ll be repaid.

The credit rating part of your credit profile looks at each account associated. For every active credit account that is associated with you there will be a credit rating that includes a letter and a number.

The letters are “I,” “O” and “R” and represented as:

  • I – this means your loan is the “installment” type (i.e. payments are a fixed amount over a set term or specified period ).
  • O – this suggests that you have “open” credit (such as a line of credit or student loan).
  • R – this is revolving credit, or an amount of money/debt owed which changes over time (e.g. credit card balance).

The numbers go from 0 to 9. The lower the number, the better the rating, with the exception of zero (0).

  • 0 means there is no credit history associated with this account. This is usually because it’s new or hasn”t been used.
  • 1 is the best rating you can hope for and means that you paid within 30 days of the payment due date and have no payments past due.
  • 9 is the worst rating, and typically means your account is in a lot of debt and has been placed in collections or bankruptcy.

What is an Average Credit Score

For the most part, a credit score around 660 is considered average for Canadians. If you are considering a personal loan and do not require the funds quickly, it can be worth your while to try and improve your credit score to beyond average as this could make you eligible for better rates and terms. Whether this works for your current needs would have to do with how urgent it is to get the funds and where your credit score currently sits. In some cases, it could take a long time to increase your score to a point where you might benefit from better rates. but for the most part, you would usually benefit from raising your score one way or another.

What is a Fair Credit Score

Those with a credit score of about 600 to 659 might be regarded as having a fair credit score. This makes up a smaller percentage of Canadians and can make it challenging to get approved for a personal loan with favourable rates. While there are still options, lenders prefer those with a good or excellent credit score as they suggest less risk. Finding different loan types is still an option although rates will be higher. 

What is a Bad Credit Score

Those that have a credit score of about 600 to 659 are considered to have fair credit, but below this are considered to have a poor credit history or bad credit score. This can make it difficult to qualify when you need to borrow. This leaves few options, with the ones available having high interest rates. But don’t despair, as there are ways that you can improve your score, so that you’ll someday be able to take advantage of better rates in the future.

A bad credit score means that you will not qualify for the best interest rates from Canadian lenders, which in turn means that the cost of borrowing should you seek a loan in future will be higher. The best thing you can do when you need a loan with bad credit score is develop a plan so that you might improve your rating, because there will likely come a day when you hope to borrow.

How to Improve A Credit Score

If you are interested in how to improve or raise your credit score for a personal loan, the first thing to know is that making bill payments on time is probably at the top of the list. Be sure that you pay at least the minimum balance due on time, although it’s advised to pay more than the minimum so that you might get out of debt sooner.

When you pay down any credit card balances, you will keep your overall credit use low. Maintaining a low utilization ratio of any credit products will also be beneficial. It’s worth noting that your Debt to Income (or DTI) ration might not affect your credit score, but it’s worth keeping an eye on it since lenders do.

What also helps is being aware of what not to do if you want to keep improving your credit score. As mentioned, paying your bills on time is one of the more important means of maintaining or improving a healthy credit score.

A big part of managing your score is knowing where you sit and what it is. According to one study, it’s said that just over half of adult Canadians have never checked their credit score. If it isn’t monitored, it probably isn’t managed. Ensure you are on top of it at all times so you can reap the rewards of a strong credit score when you need it the most.

More: How to Eliminate Credit Card Debt with Personal Loans

How to Build Credit

There will come a time when having a good credit score is important. Since it takes time to earn, it’s wise to monitor your score and continue building it up for when you need it. This might be for a personal loan, car loan, or possibly a mortgage someday.

One of the best options for building credit is by having a credit card, but it’s how you use it that determines if it helps or hurts your credit score. If you miss payments or max out the credit available to you, then it’s going to hurt your score. Ensure you make payments on time, and try to keep the amount of credit used under 30%. This is known as your credit utilization ratio and a factor in your overall score. Also, paying down any debt such as other loans can also improve your score and utilization ratio. Most will choose to take care of the ones with the highest interest first.

By looking into having certain bill payments reported to credit bureaus can be another way of building your credit. From utility bills and mobile bills to even rent can be a possibility.

When your debt is looking under control, taking a personal installment loan can be another way of continuing to improve your credit score. Sometimes referred to as credit builder loans, as long as you repay your loan payments on time it should help with your score as well.

The types of information that are considered in your credit score include your payment history, credit utilization, types of credit mix you have, outstanding debt balances, along with the number and recency of credit accounts you have.

Negative marks against your credit score can include late payments, bankruptcies, defaulting on loans and similar. Also note that when you have hard inquiries on your credit report, these can also have a negative impact on your score too.

Most consumer debt involves some or all of the following; personal loans, credit card debt, car loans, home loans (HELOC and/or mortgage), and student loans.

About 22% of U.S. adults have a personal loan, 62% have an auto loan, and over 90% have a credit card listed in their credit report. Furthermore, 14% of U.S. adults have a student loan, and about 12% of adults have a HELOC (Home Equity Line of Credit), and about 44% have a mortgage.

Additionally, the number of consumers with a subprime score have dropped from 33.8% to 30.9% (near a 3% decrease) since 2019. Those within the subprime category have also seen their credit score average increase by about 5 points. Having a credit score in the subprime area can seriously limit your options when in need of a loan. The ones that are available usually come with much higher interest rates, but when options are limited and emergencies occur, leaving people looking for loans with really bad credit few choices when they have an immediate need for funds.

RELATED: How to Improve Your Credit Score Before Applying For Personal Loans

How to Build Credit Fast

When it comes to building up your credit score fast, there are not many overnight success stories, but there is one possibility.

The first thing you should do, which can actually have quick results, is get a copy of your credit report and go through it carefully to make sure there are no errors.

Mistakes happen, and as many Canadians find errors on their credit report.

And mistakes like this can have a direct impact on your ability to get loans, along with what the actual interest rate you will pay might be.

When you are properly managing your credit card debt, an easy way to help improve your score is to request a credit limit increase. This can improve your utilization ratio, so long as you maintain it, and don’t start spending due to having more credit available.

How to Check Your Credit Score

You are permitted to acquire a free copy of your credit report once a year from the main credit bureaus Equifax, Experian and TransUnion. You also have the option to request one from the website AnnualCreditReport.com which is brought to you from the 3 main bureaus above.

When looking at your Credit Report, you want to be checking information such as;

  • Identity information (wrong name, phone number, address)
  • Accounts that belong to another person that has the same or a similar name as yours
  • Incorrect reporting of account status (e.g. closed accounts reported as open)
  • Data management errors (e.g. incorrect information after it was corrected, Accounts appearing multiple times with different creditors)
  • Balance Errors (e.g. Accounts with an incorrect current balance or incorrect credit limit)

To dispute an error that appears on your credit report, start by contacting the reporting company (Experian, Equifax, and/or Transunion) and explains in writing what the issues is, why, and provide copies of any documents to support your claims. Along with requesting the the information is removed or corrected. It’s recommended that you send by certified mail and ask for a return receipt to create the necessary paper trail and to help avoid future issues with the process or similar. After your dispute is submitted, the credit company will investigate and contact the company (called a ‘furnisher’) that provided the information to the credit bureau. The process is more likely to take a few weeks than days. Once a decision is made you would be contacted with the outcome.

RELATED: 5 Things to Know When Looking for Personal Loans

How is Credit Score Calculated

Your credit score is about how you have managed debt in the past and formed by a combination of your payment history, credit utilization, total combined debt, your length of credit history, credit mix as well as any new credit. A hard inquiry would be an example of new credit.

Your payment history makes up the largest part of your credit rating or score. This is an important part of demonstrating your credit worthiness to lenders, and your ability to repay on time, every time.

What is the Highest Credit Score

For those wondering what is the best credit score available, a score of 850 on FICO or VantageScore is about the highest one can hope to achieve, and considered the perfect credit score. Only about 1.6% of the U.S. population have such a credit score.

The basic FICO credit score ranges:

  • Exceptional Credit: 800 to 850
  • Very Good Credit: 740 to 799
  • Good Credit: 670 to 739
  • Fair Credit: 580 to 669
  • Poor Credit: Under 580

Having a credit score of 800 or higher is considered excellent and typically provides individuals access to the best rates and terms when borrowing.

RELATED: Credit Scores Made Simple and What to Know

How Long Do Hard Inquiries Stay On Your Report

A hard inquiry might stay on your credit report for about 24 months, but credit bureaus suggest it shouldn’t affect your score for more than a year. A hard inquiry might impact your credit score by 5 points or less. If you are shopping for a loan it’s likely that you could have multiple inquiries. Since this is usually within a one to two week span, when other lenders see multiple credit inquiries they aren’t usually troubled by it. Being able to prequalify for a loan also means fewer hard inquiries, which can impact your score.

What’s the Difference Between a Soft Inquiry and Hard Inquiry

A soft inquiry is created when you do things like check your credit, or check to see whether you might be pre-approved for a loan. The soft inquiry does not affect your credit score. When you actually apply for a loan, credit card or similar forms of credit, a hard inquiry is created. These can affect your credit, and you should limit the amount of hard inquiries when possible.

Credit Score Myths

There’s always incorrect info to be found, and details on credit scores is no different. The following are a few of the more common credit score myths around.

The following are a few credit score myths to be aware of;

  1. Carrying a balance on a credit card can boost your credit score
  2. Your income impacts your overall credit score
  3. Using debit cards or prepaid cards can help to build a good credit score
  4. Selecting ‘credit’ while using a debit card for a purchase can help raise a credit score
  5. Checking your report can hurt your credit score
  6. Applying For New Credit Cards Can’t Hurt Your Credit Score
  7. All three credit bureau reports have the same information
  8. Spouses have a joint credit report
  9. Closing accounts that I don’t use will help my score
  10. Credit is difficult to get if you don’t already have it

Another is the notion that you don’t need to worry about your credit score until you are older. Nothing could be further from the truth and it’s something that should be of prime concern once you have turned adult age.

RELATED: How Bad Credit Can Affect You

How Often Is A Credit Score Updated

Every 30 days your credit score is updated. Creditors will update the credit bureaus such as Experian, Equifax and Transunion with any details that may affect your score. If you make your payments on time and don’t apply for credit cards, credit lines, loans or similar, It’s likely you won’t see any changes to your score. But if you had activity that can affect your credit report, it comes down to a few things that may determine when you might see how it might impact your score. This can include when the creditor reported it to the credit bureau, how many accounts you have, and how it might impact your debt to income ratio.

What Does A Credit Score Start At?

The typical credit scoring model starts at 300, so not to worry that you might be starting at zero. You don’t automatically start with a credit score when you turn 18 years of age either. It isn’t until you have had a credit card or loan for at least 6 months that you would have one. Prior to that, without the required history, you would be considered ‘unscoreable’. For those that have never applied or only recently applied for a credit product but have no history might have what is considered a thin credit file due to not having a lot of history or information.

What if I Have a Thin Credit Report?

When you don’t have a lot of history on your credit report, this is what is known as having a thin file, and that can mean there isn’t enough info available to generate a score. There are programs which can help to improve your report such as Experian Boost, which reports the repayment data that isn’t normally considered by most credit bureaus like phone and utility bills, along with popular streaming services. Another option is UltraFICO, a free program that uses your banking history to help with building your FICO score. This looks at things like having a savings cushion, making payment on time through online banking, avoiding overdrafts, and maintaining a bank account over time too.

Is 690 a Good Credit Score?

A credit score of 690 is just a little below average and it would be worthwhile to bring it up to over 700 if you are thinking of applying for a small personal loan as it could mean much better interest rates for you. Unless you need the funds immediately, increasing your score by 10-15 points might be a possibility in a short time and should definitely be considered before you start applying.

Is 670 a Good Credit Score?

A credit score of 670 is in the beginning of the range that is considered a good credit score. It’s important to note that with many lenders you can receive preferential rates when your credit score is 700 or better. Depending on the amount you are thinking to borrow, if you don’t need the funds immediately, it can be worthwhile to focus on improving your credit score to get it past 700 when you apply. The actual amount you can save on interest rates will often make it far more appealing.

Is 650 a Good Credit Score ?

A credit score of 650 is below average but gets a fair rating. If this is where your score sits, you might consider how to improve it as this score is fairly close to a good rating of 670 plus, which can mean a noticeable difference in what interest rates you might be charged. A credit score of 650 is not the end of the world and in a good place to improve upon. The above advice and tips can help to achieve this objective so that it will improve and eventually be better.

Is 620 a Good Credit Score ?

A credit score of 620 sits below average but is considered fair for a credit score. If looking to borrow you will likely find installment loans an option to be eligible for. This type of loan has higher interest rates than a personal loan, but when your credit score is closer to fair than good it is expected that you may see loan offers with higher rates when in a lower credit band.


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