Why Your Credit Score Matters in Canada

If you’re new to the world of personal finance in Canada, one number you’ll hear about again and again is your credit score. It’s a 3-digit number that can open—or close—the door to major life milestones. But what is it, really, and why is it such a big deal?

In this guide, we’ll explain what a credit score is, how it’s calculated, why it’s important, and how you can build or improve yours from scratch.

---

What Is a Credit Score?

A credit score is a numerical rating between 300 and 900 that tells lenders how trustworthy you are when it comes to borrowing money. The higher the score, the more confident lenders are that you’ll repay your debts on time.

In Canada, your credit score is calculated by two main credit bureaus: Equifax and TransUnion. You can check your score with them, or through major banks and financial apps.

---

Why Is Your Credit Score Important?

Your credit score has a big impact on your financial future and the opportunities you’ll have. Here’s where it matters:

1. Getting Approved for Credit Cards or Loans

Whether you’re applying for a credit card, a car loan, or a mortgage, lenders will check your credit score. A low score can get you denied—or approved, but with much higher interest rates.

2. Renting an Apartment

Landlords often run a credit check before renting out a place. A poor score might raise red flags, especially in competitive housing markets.

3. Buying a Car

Most people don’t buy a car by paying the full amount upfront. Financing or leasing a vehicle depends heavily on your credit score. The higher your score, the more likely you’ll get a lower interest rate.

4. Getting a Mortgage

One major reason to build a good credit score is to improve your chances of getting approved for a mortgage. Without a solid credit history, buying a home becomes much harder and more expensive.

5. Lower Insurance Premiums

In some provinces, insurance companies check your credit score before giving you a quote. A better score could mean paying less for car or home insurance.

How Is Your Credit Score Calculated?

Canada’s credit bureaus use five major factors:

Factor	Impact	What It Means
Payment History	35%	Are you paying your bills when they’re due?
Credit Utilization	30%	How much of your credit limit are you actually spending?
Credit History Length	15%	How long have you had your credit accounts open?
New Credit Inquiries	10%	Have you been applying for new credit cards or loans often lately?
Credit Mix	10%	Do you have different kinds of credit, like credit cards, car loans, or a line of credit?

The biggest takeaway? Pay your bills on time and don’t let your balances get too high.

---

What Is a Good Credit Score in Canada?

Here’s how credit scores are generally viewed:

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

Most credit card companies look for scores above 660, while mortgage lenders often prefer 700+.

---

Common Myths About Credit Scores

Let’s clear up a few misconceptions:

You have to carry a balance in order to build credit.

Truth: making on-time payments is enough.

Checking your own credit score hurts it

Truth: Only “hard inquiries” from lenders affect your score—not your own checks.

You can’t improve your credit history unless you have a credit card.

Truth: While credit cards are common, you can also build credit through secured loans, car financing, and student loans.

---

How to Build or Raise Your Credit Score

Whether you’re starting from scratch or rebuilding, here’s what you can do:

1. Apply for a Starter or Secured Credit Card

If you don’t have a credit history, many banks offer student cards, low-limit cards, or secured cards (where you put down a deposit). Use your card often and pay the full balance every month.

2. Set Up Autopay for Bills

Missed payments damage your score. Autopay ensures you never forget.

3. Keep Your Credit Usage Below 30%

For example, if your credit limit is $1,000, try to keep your balance below $300.

4. Avoid Applying for Multiple Credit Cards at the Same Time

Every application triggers a hard inquiry, which can lower your score temporarily.

5. Check Your Credit Report Annually

Look for errors or suspicious activity. You’re entitled to one free report per year from each bureau.

---

How Long Does It Take to Build a Good Score?

By using credit responsibly, you can build a solid credit score in about 6 to 12 months. Improving a poor score might take longer, especially if you have late payments or collections on record.

---

Why Start Early?

Your credit history starts from your first credit account. The earlier you start, the longer your history will be—and that’s a big plus.

Building credit while you’re young means:

• Easier loan approvals later
• Better rates on mortgages or car loans
• Greater financial flexibility

---

Final Thoughts

Your credit score isn’t just a number—it’s a key that unlocks financial opportunities. Whether you’re planning to rent, finance a car, or buy a home in the future, a healthy score makes it all easier and cheaper.

Start small, pay consistently, and avoid debt traps. The habits you build today can shape your financial life for years to come.

---

New to credit in Canada? Start with our complete beginner’s guide to how credit cards work in Canada for everything you need to know.