Your credit score is a three-digit number that can save you thousands of dollars—or cost you thousands. Whether you're applying for a mortgage, renting an apartment, or getting a phone plan, your credit score matters. Here's everything you need to know.

What Is a Credit Score?

A credit score is a number (typically 300-900 in Canada) that represents how likely you are to repay borrowed money. Lenders use it to decide:

Whether to approve your application
What interest rate to offer you
How much credit to extend

Higher score = better rates = more money in your pocket.

Credit Score Ranges (Canada)

| Score | Rating | What It Means | |-------|--------|---------------| | 800-900 | Excellent | Best rates available, easy approvals | | 720-799 | Very Good | Great rates, most applications approved | | 650-719 | Good | Competitive rates, generally approved | | 600-649 | Fair | Higher rates, some applications denied | | 300-599 | Poor | Difficult to get credit, highest rates |

The Two Credit Bureaus in Canada

Canada has two main credit bureaus that track your credit history:

Equifax and TransUnion

Each maintains its own file on you, and your scores may differ slightly between them. Lenders may check one or both.

How Your Credit Score Is Calculated

Your score is based on five main factors:

1. Payment History (35%)

The biggest factor. Do you pay your bills on time?

Payments 30+ days late hurt your score
Collections and bankruptcies are major negatives
Consistent on-time payments build strong credit

Tip: Set up automatic payments for at least the minimum due.

2. Credit Utilization (30%)

How much of your available credit are you using?

Formula: (Credit Used ÷ Credit Available) × 100

Example:

Credit card limit: $5,000
Current balance: $1,500
Utilization: 30%

Target: Keep utilization below 30%, ideally under 10%.

Tip: Pay your balance before the statement closes, not just before the due date.

3. Credit History Length (15%)

How long have you had credit?

Older accounts help your score
Average age of all accounts matters
Don't close your oldest credit card

Tip: Keep your first credit card open, even if you rarely use it.

4. Credit Mix (10%)

Do you have different types of credit?

Credit cards (revolving credit)
Car loans (installment credit)
Mortgages (secured credit)
Lines of credit

Tip: A healthy mix helps, but don't take on debt just to diversify.

5. New Credit Inquiries (10%)

How often are you applying for new credit?

"Hard inquiries" (credit applications) slightly lower your score
Multiple inquiries in a short time (mortgage shopping) count as one
Too many new accounts can signal risk

Tip: Don't apply for multiple credit cards at once.

How to Check Your Credit Score (Free)

Free Options in Canada

Borrowell (Equifax score)

Free account, no credit card required
Weekly score updates
Credit monitoring included

Credit Karma (TransUnion score)

Free account
Weekly updates
Credit factors breakdown

Directly from bureaus:

Equifax: Once per year free by mail
TransUnion: Once per year free by mail

Important: Checking your own score is a "soft inquiry" and does NOT affect your credit.

Building Credit from Scratch

If You Have No Credit History

Option 1: Secured Credit Card

Requires a security deposit (usually $300-500)
Deposit becomes your credit limit
Use responsibly, upgrade to regular card later

Option 2: Become an Authorized User

Get added to a family member's credit card
Their payment history appears on your report
You don't need to actually use the card

Option 3: Credit Builder Loan

Small loan where payments are reported to bureaus
Money is held until loan is paid off
Builds payment history safely

Option 4: Student Credit Card

Lower credit limits
Easier approval for students
Start building credit while in school

How to Improve Your Credit Score

Quick Wins (1-2 Months)

Pay down credit card balances
- Reducing utilization can boost your score quickly
- Pay before statement closing date for best impact
Set up automatic payments
- Never miss a payment again
- Even minimum payments protect your score
Check for errors on your credit report
- Dispute inaccuracies directly with bureaus
- Errors are more common than you'd think

Medium-Term Strategies (3-12 Months)

Request a credit limit increase
- Lowers your utilization percentage
- Don't increase spending though!
Keep old accounts open
- Lengthens your credit history
- Even if you don't use them often
Mix up your credit types
- Add an installment loan if you only have cards
- Only if you actually need the credit

Long-Term Building (1+ Years)

Maintain perfect payment history
- The longer your streak, the stronger your score
- One late payment takes 2 years to fully recover from
Be patient
- Credit building takes time
- Consistent good behavior compounds

Common Credit Score Myths

Myth: Checking your score hurts it

Reality: Checking your own score is a soft inquiry with no impact.

Myth: Carrying a balance builds credit

Reality: Pay your full balance monthly. You build credit by having accounts and paying on time, not by paying interest.

Myth: Closing cards improves your score

Reality: Closing cards can hurt your score by increasing utilization and reducing history length.

Myth: Income affects your credit score

Reality: Income isn't part of your credit score calculation. A student can have a higher score than a CEO.

Myth: Debit cards build credit

Reality: Debit cards aren't reported to credit bureaus. Only credit accounts count.

Credit Score Impact Examples

Mortgage Rates

On a $400,000 mortgage over 25 years:

| Credit Score | Interest Rate | Monthly Payment | Total Interest | |--------------|---------------|-----------------|----------------| | 800+ | 4.5% | $2,217 | $265,067 | | 700 | 5.0% | $2,338 | $301,390 | | 650 | 5.5% | $2,463 | $338,827 |

Difference: An excellent score could save you over $70,000 in interest!

Car Loan Rates

On a $30,000 car loan over 5 years:

| Credit Score | Interest Rate | Monthly Payment | Total Interest | |--------------|---------------|-----------------|----------------| | 800+ | 4.9% | $564 | $3,859 | | 700 | 7.9% | $606 | $6,366 | | 650 | 11.9% | $667 | $10,007 |

Difference: Over $6,000 saved with excellent credit.

When Does Credit Score Matter Most?

High impact:

Mortgage applications
Auto loans
Rental applications
Insurance rates (in some provinces)

Moderate impact:

Credit card applications
Personal loans
Cell phone contracts

Low/no impact:

Most job applications (unless finance sector)
Utility setup (usually just need ID)
Bank account opening

Action Plan: Boost Your Score

This week:

[ ] Check your credit score (Borrowell or Credit Karma)
[ ] Review your credit report for errors
[ ] Set up automatic minimum payments on all cards

This month:

[ ] Pay down any credit card balance over 30% utilization
[ ] If no credit history, apply for a secured card or become authorized user

Ongoing:

[ ] Pay all bills on time, every time
[ ] Keep utilization under 30%
[ ] Check score monthly to track progress

The Bottom Line

Your credit score is a financial tool that works for you when managed well. The formula isn't secret: pay on time, use credit responsibly, and be patient.

Building excellent credit takes time, but the thousands of dollars you'll save on interest rates makes it one of the best financial investments you can make.

Start where you are. Your score can only go up from here.

Credit Score Basics: What It Is, Why It Matters, and How to Improve It