Your credit score plays an important role in your financial life in Canada.

It influences your ability to get approved for loans, credit cards, mortgages, and even rental agreements.

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A strong credit score can help you secure better interest rates and financial opportunities, while a poor score can limit your options.

In this guide, we’ll explore the main factors that influence your score and how to optimize them. Keep reading!

The Canadian credit score system

In Canada, credit scores usually fall between 300 and 900.

A higher score increases your chances of securing better financial opportunities.

The impact of different score ranges

Lenders categorize credit scores into different risk levels:

Excellent (760 – 900)

You’ll qualify for the best interest rates and credit offers.

Very good (725 – 759)

You have strong creditworthiness and access to competitive loan and credit terms.

Good (660 – 724)

You have access to most credit products and services with decent terms.

Fair (560 – 659)

Some lenders may approve your solicitation, but with higher interest rates.

Poor (300 – 559)

In this category, you have limited borrowing options and higher rates.

The difference between Equifax and TransUnion

Canada has two main credit bureaus: Equifax and TransUnion.

While both collect and report credit data, the information they receive from lenders may vary slightly.

This is why your score may differ between the two agencies.

Some lenders check only one bureau, while others review both.

Factors that affect your credit score in Canada

Understanding what influences your score helps you take steps to improve it.

Payment history

Making payments on time has the greatest impact on your credit score.

It reassures lenders that you’re a reliable borrower.

Late payments, defaults, and collections can significantly damage your score.

Credit utilization

This refers to how much of your available credit you’re using.

Maxing out your credit cards regularly can lower your score, even if you pay off the balance each month.

Length of credit history

The longer your credit history, the better.

Lenders prefer borrowers with a track record of responsible credit use.

Types of credit accounts

A diverse credit mix, such as having a credit card, a car loan, and a line of credit, can boost your score.

Demonstrating responsible use of different credit types helps you build a strong financial profile.

Credit inquiries

When you apply for a new credit card or loan, lenders conduct a detailed check known as a hard inquiry.

Too many hard inquiries in a short time can hurt your score.

A soft inquiry, like checking your own credit report, does not affect your credit score.

How to improve your credit score?

Boosting your credit score takes time and consistent financial habits.

Paying bills on time

Since payment history is the most significant factor, always pay at least the minimum amount by the due date.

Setting up automatic payments or reminders can help you stay on track.

Reducing credit utilization

Try to keep your credit utilization below 30%.

If possible, pay off your balances in full each month.

If your utilization is high, consider requesting a credit limit increase, but avoid increasing spending as a result.

Avoiding unnecessary account closures

Closing a long-standing account can shorten your credit history and affect your utilization rate.

If you no longer use a credit card, keep it open with a small, occasional charge to maintain its positive impact on your credit score.

Building credit from scratch

If you’re new to Canada or just starting your financial journey, establishing credit can be challenging.

Here’s how to get started:

Apply for a secured credit card

These credit cards require a deposit, but they help build credit history.

Get a credit-builder loan

Some financial institutions offer small loans designed to establish credit.

Become an authorized user

If a family member adds you to their credit card, you can benefit from their positive history.

Pay bills in your name

In some cases, payments for utilities and phone bills may be included in your credit history, which contributes to shaping your score.

Common mistakes that lower your credit score

Avoiding these mistakes can help you maintain a strong credit profile:

Submitting several applications in a short time

Every hard inquiry lowers your score slightly.

Spacing out applications can minimize the impact.

Missing minimum payments

Even if you can’t pay the full balance, always make at least the minimum payment on time.

Late payments can remain on your credit report for years.

Ignoring errors on your credit report

Mistakes in your credit report can hurt your score.

Check your report regularly through Equifax and TransUnion, and dispute any inaccuracies immediately.

Conclusion

Your credit score is an important factor in your financial health in Canada.

By understanding what affects your score and making small changes, like paying bills on time, you can improve it over time.