How Credit Scores Work: A Complete Guide

A credit score in Canada is a three-digit number, typically ranging from 300 to 900, that represents your creditworthiness. Canadian lenders, landlords, and sometimes employers may use this number to evaluate your financial reliability. The most commonly used credit bureaus in Canada are Equifax Canada and TransUnion Canada. A higher credit score can improve your chances of qualifying for loans, credit cards, mortgages, and lower interest rates. Score ranges: 300–559 is Poor, 560–659 is Fair, 660–724 is Good, 725–759 is Very Good, and 760–900 is Excellent.

The single most important factor in your credit score is your payment history. This reflects whether you pay your bills on time. Late payments, collections, charge-offs, and bankruptcies all negatively impact this category. Even one 30-day late payment can significantly lower your score. Consistently paying on time — even if only the minimum — builds positive history over time.

Credit utilization is the ratio of your current credit card balances to your total credit limits. For example, if you have a $10,000 limit and carry a $3,000 balance, your utilization is 30%. Most experts recommend keeping utilization below 30%, with the best scores typically seen at under 10%. High utilization signals financial stress to lenders even if you pay on time.

The longer your credit history, the better. This factor considers the age of your oldest account, your newest account, and the average age of all accounts. Avoid closing old credit cards — even if you don't use them — as this can shorten your average account age and lower your score.

Every time you apply for new credit, the lender performs a hard inquiry on your credit report. Each hard inquiry can lower your score by a few points. Multiple inquiries in a short period (outside of rate shopping windows) signal risk. However, soft inquiries — like checking your own credit — have zero impact on your score.

Having a diverse mix of credit types — credit cards (revolving credit), auto loans, mortgages, and installment loans — shows lenders you can manage different types of debt responsibly. You don't need every type, but having a healthy mix can positively influence your score.

Credit score ranges typically fall as follows: 300–559 is Poor, 560–659 is Fair, 660–724 is Good, 725–759 is Very Good, and 760–900 is Excellent. For most conventional mortgages, lenders look for a score of 680–720 or higher. For the best rates on any loan, aim for 760+. Understanding where you stand is the first step toward improvement.