Understanding your credit score

A credit score measures how likely you are to pay your debts on time. Your score is not a fixed number, but one that can change over time. It’s based on your credit history, which is a record of how you’ve managed credit in the past.

Lenders, such as banks and credit card companies, use credit scores to decide whether to lend you money and what interest rate to charge. By having a higher credit score, you can get lower rates on loans, mortgages, and credit cards. On the other hand, a lower credit score can make it harder and more expensive to access credit. 

Credit scores range from 300-900. The higher your score, the better your credit.

• 833-900: Excellent
• 790-832: Very good
• 743-789: Good
• 693-742: fair
• 300-692: poor

Your credit score is calculated using a formula based on the following factors:

• Your payment history: this is the a key factor and shows whether you’ve paid your bills on time. Paying late or missing payments can lower your score.
• Your credit utilization: This is the percentage of your total available credit that you’re using. For example, let’s say you have a credit card with a $5,000 limit and a balance of $1,000 -then your credit utilization is 20%. Using too much of your credit can lower your score, as it may be a red flag. Keep your credit utilization low, preferably below 30%. 
• Your credit history: This is the length of time you’ve had credit accounts. Having a longer credit history can improve your score, as it shows you have experience managing credit.  
•  Your credit mix: This is the variety of credit products you have, such as credit cards, loans, lines of credit, mortgages, etc. Having a diverse credit mix can improve your score, as it shows that you can handle different types of credit.
• Your new credit: This is the number of credit inquiries and new accounts you have. Applying for too many credit products in a short period of time can lower your score, as it suggests that you are desperate for credit or living beyond your means.
  

Having a strong credit score has many benefits when it comes to your personal finances. It can help you access lower interest rates, insurance rates, mortgage rates, access better credit cards, and more options for if you’re renting.

To learn how to get your credit report and credit score, visit: https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/order-credit-report.html