First, let’s discuss why credit is important and what constitutes a good credit score in Canada from 2022/2023 onwards.
Why is a Good Credit Score Important?
Credit scores (aka FICO Scores) are very important in Canada, especially when looking to finance assets & education to help grow wealth. As an economy, we depend on borrowing money from the banks to purchase homes and cars, finance post-secondary education, start businesses, and much more.
While there are financing options for those with less desirable credit, having good credit helps with faster and lower-interest loan approvals! In the long run, it costs you far less money to have good credit.
What is a Good Credit Score?
Ranges for credit scores can differ depending on the source and credit product. In Canada, especially for mortgages, credit score ranges, as outlined by the banks, are:
Below 600: Poor 600 – 650: Fair 650 – 720: Good 720+: Excellent
A perfect credit score is generally 850. Only 1.6% of Americans currently have a perfect credit score, so it’s quite hard (but far from impossible) to achieve.
How do I Achieve a Good/Perfect Credit Score?
Again, it’s not impossible but does require some discipline. Here are both; the steps involved in building good credit, along with your credit score makeup.
- Pay your bill on time, every time (weight = 35% of your score)
Sounds simple enough… and maybe it’s believed that one slip-up won’t impact you that much… but this standalone rule makes up for the biggest bulk of your credit score. Set reminders!
- Minimize the balances you carry on debt (weight = 30% of your score)
This is referred to as ‘utilization’. High utilization is when you are consistently carrying balances at 75% or greater of your credit limit. Experts recommend bringing balances down to 10% of your credit limit to really boost your score to near-perfect levels.
- Credit tenure (weight = 15% of your score)
The longer a credit trade has been active, the more impactful is it (positively) on your credit score. Avoid opening and closing new credit within a short time frame. This is less achievable for younger borrowers – but make sure to leave your longest-standing credit trade open to help build a higher score in the future.
- Limit excessive credit trades & inquiries (weight = 10% of your score)
Opening many new credit trades, or having too many inquiries done simultaneously, is a higher credit risk. Don’t open many new trades in a small-time frame as a strategy for boosting credit. Also, limit (within reason) the number and frequency of inquiries done against your credit to preserve your score.
- Have a variety (mix) of credit (weight = 10% of your score)
Credit mix represents a small piece of your credit score pie but still plays a part. Credit mix does not require having ALL types of credit… but a healthy mix of a few is important. (Examples of types of credit: Mortgage, finance company, credit card, retail account, installment loan, etc.)
Other frequently asked questions that we’re happy to answer. Just give us a call: (905) 455-5005
How do I check my credit score in Canada?
How do I fix my bad credit?
Can I get a mortgage with a bad credit score in Canada?
How much of a down payment do I need with bad credit?
Do I get a better mortgage rate with a good credit score?