What Constitutes a Good Credit Score? So, what exactly is a good credit score? Let us begin from the beginning.
A credit score, according to the Government of Canada, is a three-digit figure that shows how likely a credit agency believes you are to pay your debts on time.1 It may play a vital role in increasing your financial confidence and security.1 Building a strong credit score, for example, may help you be accepted for loans and major purchases, such as a home.1 You could also be able to get better interest rates.
In Canada, there are two major credit bureaus: Equifax and TransUnion.1 These are private firms that monitor your credit usage.1 To establish your credit score, they examine public data and information from lenders such as banks, collection agencies, and credit card issuers.
What constitutes a good credit score?
It all relies on the scoring model. According to Equifax, a decent credit score in Canada is often between 660 and 724. If your credit score is between 725 and 759, it is regarded as extremely excellent. A credit score of 760 or more is typically regarded as excellent.2 The credit score range is between 300 and 900.2 Your credit rating improves as your score rises.
Your credit score assists lenders in determining your creditworthiness.1 The better your credit score, the more probable it is that you will be approved for loans and credit.1 It may also be verified while applying for a rental property or certain employment.1 Everyone’s financial situation is unique, and your credit score will fluctuate over time based on your credit history and the amount of debt you owe.
What is your credit history?
Your credit history, according to the Government of Canada, is a record of your debt repayments on credit cards, loans, and lines of credit.1 Your credit history influences your credit score.1 That is why it is critical to utilize and manage your credit wisely.
How to Determine Your Credit Score
According to the federal government, it is critical to monitor your credit score so you know where you are financially. Equifax and TransUnion both charge a fee for credit scores.
How to Boost Your Credit Score
According to the Government of Canada, your credit score will rise if you handle it properly and fall if you don’t.
Here is some credit-improvement advice from the Government of Canada:
- Build your credit history by acquiring a credit card and utilizing it to buy stuff you’d buy anyway. 3 You may check and access your credit history by requesting a credit report from a credit bureau. You may get a free copy of your credit report from Equifax and Transunion once every 12 months, with no effect on your credit score. You may order the report by phone, email, or online.
- Try to pay your bills on time and in full to keep a positive payback history and boost your credit score.3 If you are unable to pay the entire debt, make the minimum payment.3 If you believe you may have difficulty paying your debt, contact your lender.
- Don’t apply for or switch credit cards too frequently.3 Make an effort to keep your total debt under control and avoid allowing tiny sums to accumulate.
And here’s a piece of advice from us: make the most of your credit card and keep on track when it comes to paying it off. Setting up pre-authorized payments from your bank account to your credit card might help you stay on top of your payments.
What is a debt-to-credit ratio or usage ratio?
Equifax defines the debt-to-credit ratio, also known as the usage ratio, as the amount of debt relative to credit limit.5 Your debt-to-credit ratio is significant since a high ratio might signal that you are a higher-risk borrower.5 This is because lenders consider borrowers who use a large portion of their available credit to be a higher risk.
Assume you have two credit cards and a line of credit with a combined debt of $14,000 and a combined limit of $20,000. Your debt-to-credit ratio is 70%.
The Government of Canada recommends a credit card, loan, or line of credit percentage of 35% or less.
How to Keep Your Credit Score
Trying to stay inside the 35% ratio described above is one strategy to preserve your credit score.3 Add all of your credit limits together and multiply the amount by 35%. When borrowing money or utilizing credit, you should preferably endeavour not to go above that limit.
Try not to apply for too much credit.
Having too many credit cards has certain drawbacks. You may be enticed to utilize them and spend more money as a result.
You should also avoid asking for too many loans, possessing too many credit cards, and requesting too many credit checks in a short period of time, according to the federal government.3 This is because it may have a negative influence on your credit score as well.
Maintain your credit limit.
Avoid exceeding your credit limit. If you exceed your credit limit, your credit score may suffer.
Overall, having a good credit score might make you feel more confident and secure about your finances. So, congratulations on taking the first step by learning about credit scores and how to improve your own!