What’s in a number? Understand the importance of your credit score – starting with how to find it.
Your credit score isn’t just a tool that helps lenders determine how much risk they take on when they lend money to you, it can also affect rental applications, insurance rates and even your ability to get a cell phone contract.
In this guide, we show you where you can find your credit score and what goes into calculating it.
What’s a credit score?
A credit score is a summary of your credit history expressed as a number ranging from 300 to 900. A few different factors go into creating your credit score.
The credit score model is a risk-based system that calculates the possibility of you defaulting on your next loan – the lower your score, the higher the possibility you’ll default.
What are the credit score tiers and ranges?
While not set in stone, the general credit tiers are as follows:
- Excellent credit score: 800-900
- Very good credit score: 720-799
- Good credit score: 650-719
- Fair credit score: 600-649
- Poor credit score: 300-599
Where can I get a copy of my credit score?
There are a few different ways to get a copy of your credit score – some are free and some cost a small fee.
- Credit score services. There are many free credit score services that don’t require your credit card details. You can find many reputable companies online offering this service.
- A credit bureau. You can find out your credit score directly from one of the two credit bureaus: TransUnion or Equifax. You will likely have to pay a fee to access your score immediately, while sometimes these bureaus will offer a free copy of your report sent via the mail.
- Credit counsellors. If you’re in need of financial counselling, credit counsellors can provide you with a copy of your credit report and credit score free of charge.
- Your account statement. Some financial institutions list your credit score on your credit card or loan account statement. Check your statement to see if this is a service offered to you.
Do you only have one credit score?
You may have a different credit score with TransUnion than you do with Equifax. While each credit bureau is equally important and reputable, one may calculate your score slightly differently from the other, depending on their credentials. A lender may check with only one credit bureau when looking into your credit score. Additionally, they may also report you to one bureau only if you default on payments or pay late.
However, you’ll always have the same credit file. If there are no errors listed on your file, you shouldn’t expect too big of a discrepancy between your scores.
What makes up your credit score?
The two credit bureaus in Canada – Equifax and TransUnion – don’t give a specific breakdown of the exact factors that affect your credit score. However, they do provide a list of the seven main factors, which include:
- Payment history. Paying bills on time positively affects your credit score.
- Delinquencies. Declaring bankruptcy or having a collections agency come after you will damage your score.
- Balance-to-limit ratio. Running your balances up to your credit limit, or over 50% of your credit limit, can negatively affect your score. Try to keep your balance-to-limit ratio around 30% or less.
- Recent inquiries. Applying for new credit requires a hard pull, which means your score will take a temporary negative hit.
- History of accounts. The length of time that you’ve had your accounts open affects your credit score. The longer you have accounts open, the more positively your credit score will be impacted.
- Variety of credit accounts. Your credit score will be affected by the balance of credit card and loan accounts that you have. Having a mix of products positively impacts your score.
- Too many accounts. Having too many accounts is viewed negatively since this could be a sign of financial trouble.
Those three digits can make a big impact on your life – good and bad – so they’re worth keeping an eye on. Be aware of the factors that influence your score and monitor your credit score carefully – you may just help edge it closer to the 900 mark.
What is a credit utilization rate?
This is your debt-to-limit ratio. If you have a $1,000 limit and a balance of $800, you have a rate of 80%. There are no hard and fast rules for how long you should try to keep your rate, but many money experts recommend that you should shoot for under 30% as a goal. Your credit score may take a hit upon transferring one or several balances to your new card if it uses most or all of your limit.
Common mistakes that hurt your credit score
You probably already know that being late on payments or defaulting on a loan is guaranteed to lower your credit score. However, here are some lesser known ways that you can hurt your credit score:
- Applying for multiple credit cards or loans. Submitting applications for credit requires a lender to do a hard pull on your credit score, which can have an adverse affect on your credit score, especially if you submit multiple applications in a short period of time.
- Letting your credit card balance get too high. As mentioned above, a credit card balance worth more than 30% of your available credit (i.e. the amount you could have spent had you hit your credit limit each time) will result in a lower credit score.
- Closing credit cards. When you close a credit card, the amount of credit available to you goes down – causing your credit utilization rate to increase. Additionally, closing an old credit card can make your credit history seem shorter than it actually is, lowering your credit score slightly.
- Renting a car with anything but a credit card. Car rental companies sometimes run a credit check on customers who don’t want to pay with a credit card.
- Not paying parking tickets or other important bills. Those bills don’t just pay themselves. After a while, parking tickets and other bills get sent to collection agencies, which negatively impacts your credit score.
- Signing up for a new phone contract. Phone companies pull a hard credit check when you sign up, causing your credit score to take a temporary dip.