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How is my Credit Score Calculated in Canada?

 Published on March 10, 2023

There are a lot of important markers of the state of your financial situation, and your credit score is one of the biggest. As important as it is, how you landed on your particular score in any given moment isn’t always clear.

Like some people, you might have a cursory understanding of some of the basics – like how you’re probably going to want to avoid maxing out your credit cards and making late payments on your bills. Or, maybe you have no inkling of what could impact your credit score, and what doesn’t.

So, with that in mind, we’re going to break down what your Canadian credit score is, what information is used to calculate it, how you might be able to impact it, and much more!

What is a Credit Score in Canada?

A credit score is a number that represents an individual's creditworthiness. It's a measure of how likely someone is to pay back borrowed money, and is used by lenders to determine the risk involved in lending to that person. Credit scores in Canada are generally calculated using a combination of several factors that indicate an individual's financial health, which we’ll touch on later.

Two people looking up how your credit score is calculated in Canada on a laptop.

Who Calculates your Credit Score?

Credit scores in Canada are calculated by two major credit bureaus: Equifax and TransUnion. Both bureaus use similar methods to calculate credit scores, but there may be some minor differences in the exact algorithms used. Generally, the credit score range in Canada is from 300 to 900, with a higher score indicating a better credit history and a lower score indicating a poorer credit history.

What is a Good Credit Score in Canada?

In Canada, good, very good, or excellent credit scores generally range from 660 to 900. A score between 660 to 724 is considered a good credit score, a score between 725 to 759 is very good, while a score of 760 or higher is considered excellent.

With a good credit score, individuals may be more likely to qualify for credit at interest rates and terms that may be more affordable.

On the other hand, a poor credit score in Canada is generally considered to be below 560. With a poor credit score, individuals may have difficulty qualifying for credit, and if they’re approved, they may be subject to higher interest rates. It's important for individuals to maintain a healthy credit score so they can potentially qualify for credit when they need it.

What is the Breakdown of my Canadian Credit Score?

There are a few different categories that credit bureaus will look at in order to calculate your Canadian credit score. They include:

1. Payment History (35%)

The most important factor in determining a credit score is an individual's payment history. This refers to the individual's ability to make payments on time. Late or missed payments can significantly reduce a credit score, so it's important to make payments on time, every time. Delinquent accounts and collections activity can also have a negative impact on credit scores.

2. Used Credit vs. Available Credit (30%)

The second most important factor in calculating a credit score is the amount of revolving credit you’ve used versus the amount you have available to you. This can include accounts like credit cards, lines of credit, and other loans. A high percentage of credit used can indicate financial stress and a higher risk of default. Individuals should aim to keep their credit utilization below 30% to contribute towards a healthy credit score.

3. Length of Credit History (15%)

The length of an individual's credit history is also an important factor in calculating a credit score. A longer credit history generally includes more information about how you have been able to manage your credit accounts over the years. If you have a short credit history or if you are just starting to establish credit, there may not be as much information on how you handle credit.

4. Public Records (10%)

If you have any history with negative public records like bankruptcy or experiences with collections agencies, this could impact your credit score. They can contribute to you being perceived by lenders as a “risky” borrower.

5. Inquiries (10%)

The final factor on this list is the impact of credit inquiries. An inquiry is any instance of your credit file being accessed, which will typically require the consent of the person whose file is being looked at.

The types of inquiries that impact your score are generally the ones that are done when you’re actively looking for credit, like when you apply for a line of credit. These are usually classified as “hard pulls”. While it’s not always the case, a person seeking credit may hint at some financial difficulty.

It’s also important to note that some credit inquiries are classified as “soft pulls” which will typically not impact your credit score. When an inquiry is going to be performed, it’s important to make sure you know what type of pull it’s going to be ahead of time.

Person looking up credit scores in Canada on their laptop.

It's important to note that credit scores are not set in stone and can fluctuate over time. Changes to any of the factors listed above can impact credit scores, so it's important to continually monitor credit reports and take steps to maintain a healthy credit history.

How Can I get a Free Credit Report in Canada?

In Canada, individuals are entitled to one free credit report per year from both Equifax and TransUnion. It's important to regularly check credit reports to ensure that all information is accurate and up to date. If there are errors or inaccuracies, individuals can dispute them with the credit bureau to have them corrected. This is important because errors on a credit report can negatively impact an individual's credit score and potentially harm their ability to qualify for credit in the future.

How can I Impact my Credit Score?

Maintaining a good credit score is important for financial health and can help individuals qualify for credit at rates and terms that may be suitable for them. Here are some tips for keeping a credit score in good standing.

1. Make Payments on Time

Payment history is the most significant factor in calculating a credit score, so it's important to make all payments on time. This includes credit cards, loans, and other bills. Setting up automatic payments can help ensure that payments are never missed.

2. Keep Credit Utilization Low

Credit utilization is the percentage of available credit that is being used, and a high utilization rate can negatively impact a credit score. Keeping credit utilization below 30% is recommended.

3. Avoid Opening Too Many New Accounts

Opening multiple new credit accounts within a short period of time may lower a credit score. Only open new accounts when necessary and avoid opening several new accounts at once.

4. Maintain a Mix of Credit Types

Having a mix of credit types, such as credit cards, loans, and lines of credit, can indicate responsible credit use and can impact credit scores. However, it's important to only use credit as needed and to avoid carrying balances.

5. Regularly Check Credit Reports for Errors

Errors or inaccuracies on a credit report can negatively impact a credit score. Regularly checking credit reports from both Equifax and TransUnion can help individuals identify and dispute any errors.

6. Avoid Collections and Defaults

Collections and defaults can significantly damage a credit score, so it's important to avoid them whenever possible. This includes paying bills on time and working with creditors to establish payment plans if necessary.

By following these tips, individuals may be able to maintain a healthy credit score and improve their financial health. It's important to remember that building and maintaining a good credit score takes time, and it's important to be patient and consistent in practicing responsible credit use.

How do I Dispute an Error on my Credit Report?

To dispute an error on a credit report, individuals should first obtain a copy of their credit report from either Equifax or TransUnion. They can then review the report for any errors or inaccuracies and submit a dispute with the credit bureau. The credit bureau will investigate the dispute and make any necessary corrections to the report.

Person smiling looking at their phone.

Keep Tabs on your Credit Score

In conclusion, credit scores in Canada are calculated using several factors, including payment history, amounts owed, length of credit history, types of credit, and new credit. It's important to maintain a healthy credit score by making payments on time, keeping credit utilization low, and avoiding opening too many new accounts. Regularly checking credit reports for errors and inaccuracies is also important to ensure a healthy credit score.


Disclaimer: This page provides general information only and does not constitute financial, legal or other professional advice. For full details, see Fora’s Terms of Use.