Anything above 660 is considered a good credit score in Canada. 600 is the minimum score required to qualify for CMHC mortgage rules. However, the best mortgage rates are typically saved for those with a credit score above 760. This is because lenders reward better interest rates to lower-risk applicants.
You can think of your credit score as proof of your financial reliability. Having a higher credit score shows lenders that you are more likely to pay back your debts. In return, they are more likely to offer you loans with better interest rates. Without a credit score, you’ll be limited to higher interest rate no-credit-check loans.
There are two main credit scores in Canada: Equifax and TransUnion. These companies get their information from your credit report, which records your financial history. The report includes whether you make your payments on time, how much debt you have, and what kind of credit you have.
It's essential to check your credit score regularly to ensure accuracy. If you see something on your report that doesn't look right, you can dispute it. You can get a free copy of your credit report from Equifax and TransUnion once a year.
|Credit Ranking||Score Range||Description|
|Excellent||760 to 900|
|Very Good||725 to 759|
|Good||660 to 724|
|Fair||560 to 659|
|Poor||300 to 559|
As reported by Equifax, the average credit score of Canadians without a mortgage in 2021 was 753. However, Canadians with a mortgage had a slightly higher credit score at 767. The graph below shows how the average Canadian credit score has changed over five years. Additionally, the following sections discuss the average credit score by province and age.
|Province||Average Credit Score|
|Age||Average Credit Score|
|18 to 25||740|
|26 to 35||745|
|36 to 45||759|
|46 to 55||768|
|56 to 65||788|
The maximum credit score is 900 in Canada. However, anything above 760 is excellent. Having a credit score in this range will provide you with the lowest interest rates, and you'll most likely be approved for any loan. Although, lenders will also assess your income when qualifying you for loans. The most important factors are your debt service ratios. These ratios show the percentage of your income going towards debt-related payments.
Lower debt service ratios show you have more income available to make payments. A low debt service ratio and a high credit score make you the most creditworthy applicant. In particular, the absolute maximum total debt service ratio is 44%. This means no more than 44% of your income is spent on mortgage payments, student loans, and other debt obligations. In reality, lenders prefer to see this below 40%.
The best way to improve your credit score is by paying your bills on time, maintaining a good mix of credit, and keeping your credit balances low. Additionally, you can check your credit report for errors and dispute them if necessary.
Improving your credit score can take time and can be damaged quickly. As a result, it helps to understand how your credit score is calculated. There are five categories included in your credit score calculation. Each category has a different "weighting," meaning some are more important in your overall credit score calculation. For example, payment history has a 35% weighting while inquiries only have 10%. A missed payment will drop your credit score significantly more than applying for a new credit card.
Your payment history is one of the most critical factors in your credit score calculation. It's what lenders look at to see if you're a responsible borrower. A missed payment will have a significant negative impact on your credit score.
Your payment history is calculated by looking at the following:
Your credit utilization is the second most crucial factor in your credit score calculation. It measures how much debt you're using compared to your credit limit. Your credit utilization is calculated by dividing your credit balance by your total credit limits. For example, if you have a combined credit access of $20,000 and a balance of $7,000, your utilization would be 35%. Aim to keep your utilization below 30% at any given time.
The length of your credit history is the third most important factor in your credit score calculation. It's a measure of how long you've been using credit. Your length of credit history is calculated by looking at the following:
This is why it's not recommended to close your oldest credit card account, as it would decrease your average account age. If your oldest card has a high annual fee, you can call your lender to inquire about switching the account to a fee-free card. This will not affect your average account age.
Your credit mix is the fourth most important factor in your credit score calculation. It's a measure of the different types of credit you have. A diverse mix of credit is seen as being more responsible with credit than someone who only has one type of credit product. For example, a mix of installment loans (e.g. car loans) and revolving credit (e.g. credit cards).
New credit inquiries are the fifth most important factor in your credit score calculation. They're a measure of how often you've applied for new credit. Each time you apply for a new credit card or loan, an inquiry is placed on your credit report.
Inquiries can stay on your report for up to two years and can slightly lower your credit score. As a result, it's best to avoid applying for new credit.
While there's no universal answer to a "good" credit score, anything above 660 will allow you to get a mortgage. Anything above 760 will provide you with the best interest rates. If you need to improve your credit score, you can enhance the five factors above.