All you need to know about Canadian Credit Scores

What is a Credit Score?

A Credit Score rates your creditworthiness based on previous financial behavior and repayment history on credit cards, loans, and lines of Credit. In Canada, two credit reporting agencies, Equifax and TransUnion, are responsible for compiling and generating credit scores.

A Canadian credit score is a 3-digit number ranging from 300-900. The higher the number, the better your score. A good Credit Score helps you get approved for bigger loans and Credit.

How prevalent is Credit in Canadian society

The Canadian public's reliance on Credit can be summed up by the findings of the Canadian Payment Methods and Trends Report 2023. The study found credit cards were the most popular payment instrument, with transactions valued at $674 billion in 2022 or 33% of all payments. Of all Canadians surveyed, 83% reported using credit cards frequently or at least once a month.

Factors that affect Credit Scores

Naturally, your ability to make timely payments goes a long way in dictating your Credit score, but that's not all. Other factors also play their part, including:

• Credit utilization - or your Debt-to-Credit ratio shows the amount of debt against your credit limit. Having a higher ratio makes you a riskier proposition for lenders.
• Length of Credit History - A longer credit history can benefit credit scores - another reason newcomers are encouraged to establish a Canadian credit history as soon as possible.
• Types of Credit - Having a mixture of different credit types, including credit cards and loans, also positively affects credit scores.
• Erratic activity - unsound financial decisions, such as opening multiple lines of Credit within a short period, can negatively affect credit scores.

What is a Good Canadian Credit Score

Canada categorizes credit scores along the given range:

• 300-559: Poor
• 560-659: Fair
• 660-724: Good
• 725-759: Very Good
• 760-900: Excellent

Improving your Credit Scores

Responsible financial decisions will help lift your credit scores. Some core principles worth noting are:

• Use a Credit card for your everyday purchases to establish a credit history.
• Paying Bills on time and in their entirety. In cases where you can't complete a full payment, try to meet at least the minimum payment.
• Not switching credit cards or applying for more loans unless required. Opening new lines of Credit can quickly build up your debt.
• Ideally, you should stick to utilizing no more than 35% of your available Credit.
• Going over your credit limit is a sure way to tank your credit scores; avoid it at all costs.

Is Canada's credit score any different from the US's?

The Canadian credit ratings are no different from those of the US in most respects. They are both calculated based on an individual's payment history, accounts owned, length of credit history, the types of Credit utilized, and any new credit lines.

They differ in the scoring system. While Canada has scores from 300 to 900, US credit scores are between 300 and 850.

Additionally, Canadian credit scores have a letter (I, O, R) and number (1-9) attached to designate a borrower's current credit status.

• 'I' indicates the borrower has an installment loan with fixed monthly payments.
• 'O' indicates an open credit amount, where the balance is paid back at the end of the period.
• 'R' indicates revolving Credit, most commonly credit cards.

The numbers indicate:

• 1 indicates that the borrower pays off all bills within 30 days of the due date.
• 9 indicates the bills are never paid.
• 0 indicates a new account.

Can Americans retain their credit score when moving to Canada?

Generally, Credit history does not transfer across borders. Canadian credit reporting agencies operate independently from their American counterparts, with distinct credit reporting systems.

Individuals relocating to Canada may find themselves without an established Canadian credit history. Newcomers will have to rebuild their credit scores in Canada by opening local bank accounts, obtaining a Canadian credit card, and making timely payments on bills and loans. It's crucial for American newcomers and expatriates to proactively manage their Credit in Canada to access financial products and services smoothly.

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