What’s a good credit score?

A good credit score is around 660 to 724. A very good score is around 725 to 759, and excellent is around 760 to 900. On the other side of the meter, a fair credit score is around 560 to 659, and poor is around 300 to 559.

Your credit score is much more than a numerical expression of your creditworthiness. How high or low your credit score is determines how high or low your interest rates are if you wish to get items like a car, home or credit card — any purchase that requires a lender to access your score. A good credit score gives you power to shop with the best companies and pay less overall for your purchases.

Credit score rating system

By knowing your credit score rating, you’ll know which financial products suit your situation so you don’t end up wasting your time applying for credit cards or personal loans that are outside of your means.

Scores can fall into the categories of poor, fair, good, very good and excellent. The difference between each credit score tier can result in what sort of credit card or loan is available to you, as well as the terms and rates of whichever product you apply for.

How your credit score is determined

An Equifax and a TransUnion Score — the 2 most widely used credit bureaus in Canada — both weigh similar factors when evaluating your borrowing activity. Equifax provides the following general breakdown:

• 35% Your payment history, including late and on-time payments, collection actions and judgments against you.
• 30% Your credit utilization ratio, which is calculated by dividing your balance on existing credit cards by your available credit limits.
• 15% The age of your credit history — or how long you’ve had credit.
• 10% How often your individual credit file is accessed for any reason. This only happens with your consent, such as if you’re applying for new credit cards or loans.
• 10% History of bankruptcy.

• What's the average credit score?

  The average credit score in Canada is currently around 650. However, borrowers between the ages of 18 and 25 have on average a higher score that falls around 690 (based on 2018 data).

• What's considered a good credit score?

  A good credit score is typically anywhere between 660 and 724, while a very good score is between 725 and 759 and an excellent credit score is between 760 and 900.

• What's the best credit score?

  The 2 major reporting agencies — Equifax and TransUnion — vary in how they rate the quality of a credit score. But scores generally run between 300 and 900, with 900 being the best. Scores that fall between 660 and 724 are considered “good,” and are usually the point at which you can apply for credit cards, personal loans, mortgages and auto loans.

Why you have multiple credit scores

Lenders and even the bureaus use many different proprietary algorithms to weigh the information in your credit history, but 2 scores are more widely adopted:

Equifax credit score. Anything at or above 660 is a “good” score, and 760 and above is “excellent.”

TransUnion score. A “good” rating is around 740 up to 790, while an “excellent” rating is around 830 and up.

What information shows up on your credit report?

Why your credit score matters: The benefits of being a trustworthy borrower

A higher credit score generally indicates that you can wisely manage your finances. If your score is at least 700, a lender will see you as unlikely to become delinquent on your payments, and you’ll have many more credit options available to you than if your score was lower.

Being categorized as someone with “good credit” makes you less of a credit risk, meaning you’re more likely to get approved for a loan or credit and pay less with a better interest rate. Benefits include:

Do you have a good credit score?

Example: How a good credit score can help you save on your next car

Let’s say you want to buy a new car but your credit score is only 620. This score is considered “poor,” and without a cosigner, it will be difficult to get that sweet ride you’ve been eyeing. Lenders consider any score less than 660 as risky or subprime (poor or below average) and may offer you a loan with a higher interest rate to offset the risk that you’ll default.

There are many auto dealers who work specifically with this group of “high-risk” consumers. You may have to settle for a less desirable vehicle and will pay much more than the average borrower with a rate that could go as high as 25%!

In addition, you may be asked to put more money down on the car. The dealership wants to collect as much in cash as possible at the beginning of your financial relationship with them in case you default on your loan.

Case study: Sandra's experience

Sandra

Financing a car with a credit score of 620 vs. 740

Sandra is looking to buy an inexpensive used car from a private seller. She finds a good vehicle that runs well listed for just $8,600. Her lender says that, because Sandra’s credit score is 620, she’ll have to pay 15% in interest on a loan to buy the car.

620 credit score: Monthly payment on a $7,600 loan at 15% interest

Loan amount	$8,600
Interest rate	15%
Down payment	$1,000
Loan term	48 months
Monthly payment	$212

After 4 years at 15% interest, Sandra will have paid $10,153 for her $7,600 loan (or $8,600 minus her $1,000 down payment). That’s $2,553 in interest over the life of the loan.

With an improved credit score, Sandra is eligible for a lower interest rate. For example, here’s the same transaction with a “very good” credit score of 740.

740 credit score: Monthly payment on a $7,600 loan at 5.9% interest

Loan amount	$8,600
Interest rate	5.9%
Down payment	$1,000
Loan term	48 months
Monthly payment	$178

Here, after 4 years at 5.9% interest, Sandra will have paid $8,544 for her $7,600 loan – or $944 in interest over the life of the loan.

With poor credit, she’ll pay $34 more per month for the same car — more than $1,600 in interest over 4 years. This is the cost of having a lower credit score. If you applied those same interest rates to a $300,000 house, you’d be stunned at the difference in what you could be paying.

Find out more about your car loan options

Walking into a car dealership with a 740 credit rating will get you the royal treatment. On the other hand, walk into that same dealership with a credit score of 620, and you may be treated differently. The dealer might tell you they are be able to sell you a car, but with your credit, they’ll charge 14% interest instead of 4%.

The bottom line

When it comes to credit, tread carefully. If you’re in college or even high school, don’t make frivolous purchases in the spur of the moment. It can take 3-6 years for a negative item to fall off of your credit report.

It’s often a good idea to sit down before shopping and write out your expenses and income. Once you have a budget worked out, you can decide on a payment that fits into your finances comfortably so you can maintain a good credit score.