Learning about credit score ranges is crucial. Your credit score can determine whether you can get a loan, go on vacation, or own a home.
To help you understand credit scores, we will examine the differences between a good score, a fair score, and a poor one. We want you to understand these scores better so that you can improve your financial health.
So, let's get started.
What is the process for calculating credit scores?
In Canada, credit reporting agencies like Equifax and TransUnion calculate credit scores in specific ways. And these organizations rarely share how they accurately determine scores.
The Financial Consumer Agency of Canada (FCAC) has explained certain factors used to assess how credit scores are calculated, despite the secrecy of credit reporting agencies.
Here is a list of factors:
- Duration of each credit listed on your report
- How long have you had credit?
- If you carry a balance on your credit cards
- If you regularly miss payments
- The amount of your outstanding debts
- Being close to, at or above your credit limit
- The number of recent credit applications
- The type of credit you're using
- If your debts have been sent to a collection agency
- any record of insolvency or bankruptcy
Many financial institutions may calculate scores differently. To some credit lenders, your fair or poor credit score might get you approved for a loan. But ultimately, improving your credit rating is the best choice.
What is a good credit score?
Equifax says a good credit rating in Canada falls between 660 and 724. Having good credit is like being Justin Trudeau. But instead of getting fancy bodyguards, trainers, and chefs, getting a loan will be easier, and you'll get some perks.
You could be approved for the best apartments with a 724-credit score. You might also be able to rent or buy luxury vehicles. Visa and Mastercard may offer you credit cards with lower interest rates.
Keeping a good credit score is difficult, but useful. Having a good credit rating is part of being responsible with your finances. A 2018 FCAC survey found that financially responsible individuals felt less stressed and were mentally and physically healthier.
What is a fair credit score?
Equifax regards a credit score between 670 and 739 as a fair one. Having a fair credit score is not terrible. A fair credit score is like owning a small two-bedroom home. This home isn't an enormous house; however, it could fit the needs of a young couple.
A fair credit score is comfortable. You can still buy some used vehicles at a car dealership. A lender might approve you for a small loan. It's less challenging to improve a fair credit score.
While not terrible, a fair score can hold you back. For example, a lender could deny your request for a new car loan. Car dealerships and other lenders often favour people with good credit for buying new cars. You might need a cosigner to rent an apartment or to get a private student loan. If you get approved for credit, the interest rate will likely be high, and the loan amount will be small.
What is a poor credit score?
A credit score below 560 is poor. This score is comparable to being in solitary confinement. You have the freedom to walk around, but you are confined to a six-by-eight-foot cell.
A poor score will limit your access to getting new credit. It can impact your ability to get home insurance and renters' insurance. Your rating will also make it difficult for you to buy a house. Credit lenders may view your credit score as high risk. There's a chance they'll turn down your new loan applications.
A poor credit score is not a life sentence. Your credit rating can still improve, but not right away.
How to improve your credit score range
Your credit score influences your financial freedom. Having a fair or a poor credit score is like going to see a film at an outdated theatre. At an old theatre, you arrive at the building, order a big bucket of popcorn and a large Coke, and find yourself seated in an uncomfortable chair.
With a good credit score, you have access to a more luxurious theatre. In this theatre, a server will cater to you while you watch your film on a comfortable seat. You can get pizza, hot dogs, nachos, and even ice cream delivered to you. You can do this by using an app on your phone or by calling out to your server.
To get a good credit score, use these simple tips:
Pay your bills on time
The best way to improve your credit is by paying your bills on time. We are not just talking about your credit card bills, but expenses such as rent, cell phone, internet, and hydro as well. If you can't pay your bills on time, let your creditors know as soon as you can.
Don't close accounts
Don't close your credit card accounts after fully paying them off. Keeping your accounts open is useful. This builds your credit history, which improves your credit score.
Make the minimum payments
Focus on making monthly payments. Making small monthly payments helps maintain a healthy credit rating. If you don't pay, your credit score could decrease, and collections could follow, harming your credit even further.
Limit Your Credit Checks
If you want to improve your credit score, the best thing you can do is limit credit checks. When many financial institutions request to see your credit report, this sends a red flag to Equifax and TransUnion. Your credit score could decrease if these bureaus feel you're overspending or need loans immediately, which is a sign of poor financial behaviour.
Final thoughts
Knowing your credit score range is crucial in today's economic climate. If you do not have a good credit score, there's still hope for you. You can learn a bit more about financial literacy and various ways to manage your wealth. If you'd like to learn more about credit scores and how credit works, visit the FCAC website today. They have got some great resources for you to read.