Canada started using credit scores in 1989 and, as confusing and inconvenient as they can be, they’re here to stay. That’s why it’s important to know as much about them as possible, as they can affect your daily life and have a huge impact on the opportunities available to you.
So, what should you be aiming for? What is an average credit score in Canada?
Let’s take a look at the average Canadian’s credit score, as well as what affects it and how you can improve.
What Is an Average Credit Score in Canada?
The average credit score in Canada is 672. This is an improvement from previous years, as it seems that Canadians actually saw financial improvement during the pandemic — unprecedented since companies and wages took a hit during COVID-19.
One study also found that credit scores improve by age. The average credit score of someone who’s between 18 and 25 is 692, whereas the average of someone who’s 65+ is 750.
This is presumably because a big influence on credit score is account history and length of lines, and those who are older have had more time to rack up that good credit reputation.
What Does a Credit Score Mean?
A score of between 660-724 is generally considered good. Anything about that ranges from very good to excellent, and anything below is poor.
A credit score can be anywhere between 300-900. If it sits very low, it’s on the extreme end of bad and may take some time to work up.
The credit score range in Canada is very wide, but most people tend to sit in average or good, according to the studies that have been done.
Why Is a Credit Score Important?
Although many of us would like to forego thinking about credit scores because they can be stressful, you need to bear yours in mind. Credit scores are used by lenders to determine if someone is eligible for their loan, including essential things in life like mortgages and auto loans.
Even if a lender is willing to give you a loan based on a credit score, the lower your score is, the higher the APR will be. This is to assure them you can pay it back. If you work up to a higher score before taking out a loan (or have someone with a higher score sign it), the interest will be lower and you’ll pay less over time.
Landlords may also review your credit score when you apply for an apartment, as it’s often part of the tenant background check.
What Is the Minimum Credit Score for a Mortgage in Canada?
Since a mortgage is often the most crucial part of having a good credit score, it’s important to know what’s required if you want to buy a house.
It depends on the lender but, in general, you’ll want to have a score of around 680. Anything lower is risking being denied. The higher, the better, of course.
What Affects Your Credit Score?
If you’re looking to improve a credit score, you need to know what affects it. The following things all have a huge influence on your credit score in Canada:
- Payment history (with late payments have a very negative effect)
- Credit utilization
- How many accounts are open
- How long they’ve been open for
- How many hits your credit score has taken due to inquiries
- Types of credit
You should bear all of these in mind when making financial decisions, especially if your goal is to increase your score quickly.
How to Increase a Credit Score in Canada
Whether you have an average score and are looking to build it up more or have a low one and need to get there fast, there are a few ways to build up your score.
Pay Bills on Time
The first, and perhaps most important, thing you can do is to pay your bills on time.
When late payments are reported to credit bureaus, your credit score takes a hard hit. They can stay on there for up to six years, so it’s essential to get a handle on them before they’re late.
You can set up autopay on most bills so you don’t have to remember to sign into your account and manually pay things. That reduces the risk of you forgetting to pay for something.
If you know you can’t pay a bill on time this month, then contact the company and let them know. While it can be a daunting thing to admit to a business that you can’t afford a payment, most lenders are understanding and would rather be told upfront than receive radio silence as you miss a payment.
They can often extend the due date or even defer a due date. Since the pandemic hit and many people were struggling financially, a lot of lenders have softened their policies on this and you can use it to your advantage.
Keep Credit Utilization Low
When you have lines of credit open, one of the worst things you can do for your credit score is to use most of it constantly. For example, if you have $10,000 CAD total on credit cards, don’t leave the balance sitting at $9,500 for months on end — your credit utilization will be very high, and this will negatively affect your score.
Try to keep balances low. Many experts recommend keeping your credit utilization around 30%, but this isn’t a hard and fast rule. As long as you try to be closer to 0% than 100%, you should be fine.
Keep Lines Open for a Long Time
Don’t close lines to open new ones. Instead, try to keep any credit lines that you have open for a while, even if you don’t use them anymore.
For example, have a credit card you no longer need? Make small purchases on it every month and pay them back right away. This shows responsible credit use and will bring your score up, whereas not using the card at all doesn’t tell credit agencies anything.
Just make sure you remember to pay it, as otherwise, it will have the opposite effect.
Don’t Make Too Many Inquiries
Try to only inquire for a line of credit if you know you’re going to be approved. You can do this by getting pre-approved at a lot of places.
Pre-approval means your credit score won’t take a hit as the company softly investigates how much credit they’re willing to give you.
A lot of the time, you can also make an educated guess about whether you’ll be approved for a line of credit or not. If you’ve had a credit card for two months and you haven’t used it much or had an income increase, it’s unlikely they’ll raise your line of credit so soon.
Most companies want you to have a card for at least six months before they raise the line of credit.
Take Out Different Types of Loan
Taking out different types of loans can also be helpful, as it shows credit bureaus that you know how to be responsible with a wide variety of credit. Just make sure to not use them all to the max.
How You Can Get Around Having a Less-Than-Average Score in the Meantime
If you have a score that’s less than the average Canadian and you’re wondering how to circumvent this, the best answer is to hold off taking out any credit until your score has improved. However, that’s not always realistic.
If you need a loan, look for companies that specialize in bad credit loans. Make sure you research them thoroughly before committing and ensure they’re reputable.
If you need help with a mortgage, rental, or auto loan, you can also have someone co-sign. If you have a trusted friend or relative with a good credit score, they can offer to take responsibility for payments if you fall behind on them.
This will also affect their credit score though, so you both need to be aware of the consequences if something were to happen and you could no longer make the payments you said you would.
The Average Credit Score Is a Good Aim
Since the average credit score falls within the good range, it’s a great aim to have. If you’re already there, then you can work towards continuously improving your score for more leeway and lower interest rates.
If you’re far below it, don’t be discouraged. If you work hard, make payments on time, keep your utilization low, and make smart financial decisions, you’ll soon get there and rise above it too.
Do you need help with your path to financial freedom? Check out our site today and see how we can help you achieve a great credit score and lots of open doors.