What is a good credit score?

In summary:

• A credit rating is information provided by your creditor and displayed by the two credit bureaus, reflecting your repayment habits.
• A credit score is a number between 300 and 900, calculated based on the information in your credit report.
• Generally, a score of 680 is often considered the minimum to qualify for many types of loans.
• Knowing and checking your credit score every 6 months is an excellent way to ensure your credit report is healthy and free from errors (or fraud).
• To check your credit score and rating, visit www.equifax.ca or www.transunion.ca. You can obtain this information for free.

The world of credit can be quite mysterious and often confusing. However, having what is commonly referred to as a  «good credit score» directly impacts not only your ability to borrow money, but also the interest rates you’re offered (and thus the cost of borrowing), your access to better credit products (like a line of credit), your home insurance premiums, your ability to rent a desirable apartment, and even, in some cases, your chances of getting a job.

As mentioned, a score of 680 is typically considered the minimum for eligibility for several types of loans.

Given how important your credit score is, let’s take a closer look at what it actually is and what can affect it.

What is a credit rating?

First, it’s important to understand what a credit rating is. It’s a monthly report from each of your creditors that shows how you’ve been repaying your debts. These ratings are displayed on your file with both credit bureaus and are visible to anyone who checks your credit for 6 years. This rating is a score from R0 to R9, based on how promptly you make your payments (e.g.: R0 = no information; R1 = pays on the agreed date; R2 = pays more than 30 days late, etc.). This information is reported monthly by each creditor. It also includes your credit limit and the outstanding balance at the time the information was reported. This helps new lenders assess the risk you represent compared to other borrowers. The principle is simple: the more you follow payment terms and deadlines, the better your credit rating will be.

What is a  «good credit score»?

Having a good credit score generally refers to a score between 680 and 724, which indicates you’re considered a low-risk borrower. This makes it easier to access various types of credit such as credit cards, personal loans, or mortgages. A good score often allows you to receive better terms from lenders.

A very good or excellent score (725 and above) increases your chances of getting the best interest rates and the most competitive offers from financial institutions.

On the other hand, a score in the fair or average range (around 560 to 679) may make it harder to obtain credit, or may result in less favorable conditions, like higher interest rates.

If the score is poor (below 560), loan approval may require additional guarantees or stricter conditions.

What influences your credit score?

Your credit score (sometimes called your «rating») is like your overall average grade in school. It’s calculated by the credit agency using a secret formula, but it’s primarily based on these 5 key factors:

1. Payment history (35% of your score): This summarizes your repayment habits. Any payment 30+ days late is recorded on your report and lowers your score. The later the payment, the worse the impact. Tip: Avoid late payments at all costs!
2. Credit utilization rate (balance owed compared to credit limit) (30% of the score): Ideally, the balance owed in relation to the authorized limit should be below 35%. An average above 50% of your available credit negatively affects your score, even if you pay off the full balance at the end of the month. It’s best to stay at 35% or less of your credit limit. Good to know, isn’t it!
3. Age of your accounts (15% of the score): The older your accounts are, the better your credit score will be. If your accounts have been open for a long time, creditors can more easily assess your repayment habits. Keep your oldest accounts and avoid opening too many new ones.
4. New credit applications (10% of the score): Each time a lender checks your credit report to approve a loan or credit card, a note is added to your file. The idea is simple: if you’re actively seeking credit, you’re seen as a higher risk for accumulating debt. With that in mind, avoid making multiple credit applications and don’t fill out credit card forms just to «win a trip down South»!
5. Number of creditors and credit mix (10% of the score): Lenders consider it a good sign to have a variety of credit types, for example a credit card, a line of credit, a store credit card, and a loan. That said, be careful not to fall into the trap of over-indebtedness!

Don’t confuse credit rating with credit report

The credit rating is just one part of the credit report, but the report itself covers much more: it includes all the financial information that credit bureaus use to assess your borrowing behavior, employment stability, and residential history. A strong credit report is therefore based on a combination of a good credit rating and a high credit score and overall stability, reflecting responsible and consistent management of your financial obligations.

How to check your credit score?

To find out your credit score and rating, visit www.equifax.ca or www.transunion.ca. You can obtain this information for free.

Armed with this information, you now know what a good credit score is and what can affect it. This will help you make informed decisions to maintain a solid overall credit profile. But above all, just because you can borrow, doesn’t mean you should.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee