What Is a Good Credit Score in Canada?
What is a good credit score?
First of all, what does that mean is it good credit score, or what is it bad…, what is that score number that you’re going to need to secure that car loan. And what happens if your number isn’t so great, how do you change or improve your credit score?
In this article, we are going to teach you exactly what a good and a bad credit score is in both Canada and the US, and how you can change and improve your score.
All these advises are collections brought together from different financial coaches about helping you take the fear out of finance so that you can live debt-free the rest of your life.
What is considered good credit?
Obviously it will depend on the company that you’re asking to loan the money from where the line is between good and bad credit. However, in general, the higher that your number, the better your credit is if we take a look at Equifax, which is one of the top official credit bureaus. They say anything from 660 to 724 is considered good credit. Anything from 725 to 739 is considered very good credit, and anything from 760 and above is considered excellent credit. This means that anything below 660 is considered bad credit.
Now if you’ve already checked your credit and you find yourself in that zone, don’t freak out yet. There are definitely ways that you can improve that number, and it really does depend on the kind of where you are within that lower than 660 range. So for example from 566 to 600, you might actually be still okay for getting alone. You just might not have great loan terms or have a lot of wiggle room on what they’re willing to give you. However, if you’re on that lower end that 300 to 560 range. That’s where we’re going to run into some problems. So if you do find yourself here how do you turn it around.
How these scores are calculated?
No one knows with 100% certainty on how credit scores are calculated the Bureau’s don’t release their exact formulas and if they did, it would be way too easy to cheat the system. However, we do know the factors in which they’re looking at and have kind of a rough idea of how much each of them matter credit history is a big one lenders, the people that you’re borrowing the money from want to know that you have a long history of properly repaying debt, so that they can know that it’s more likely that you’re going to repay theirs, the longer your accounts have been opened the better if you don’t have a credit history, it can be pretty difficult to get approved for credit.
It’s kind of like the chicken and egg scenario or applying for one of those entry-level jobs that require three years of experience, you have to have credit to get credit. It can be pretty frustrating. Hopefully, you’ve got some sort of credit card in college or university that you can start with, but if you don’t have any credit history, start one, you’re going to have to be able to show that you can pay something off responsibly, and the quicker that you start the better off that you will be along with credit history payment history is also a pretty important factor of your score.
Again, the lender wants to know that you are responsible with what you’re given and you stick to the agreement terms, ie paying your loans in the amount that satisfactory and on time. If you pull your report and you find that you’ve messed up a couple of times on payments. It’s okay. You can’t fix the past but you can be better moving forward.
So, take a few months and be consistent with your payments, the further that you can get yourself away from that old irresponsible you, the better that you’ll be able to prove that you’re reformed and your credit will improve, so don’t miss a payment again and you should be okay.
Another thing that’s really important to your score is credit usage is basically how much of that debt, you have, or the ratio of the available amount and how much you’re actually using, it’s important to have a credit history, but if you have too many accounts open with too high balances, then it can really affect you negatively.
So a good rule of thumb is to make sure that you’re keeping your credit usage at or below 30% of your available credit.
If you have a credit card limit of say, 20 $500, make sure that there’s no more than a $750 balance on it at a time. Now obviously, the lower the balance, the better it is if you can pay off your credit right away in full that’s the best-case scenario, but if you’re having trouble really try and keep it as close to that 30% as possible.
Another trick that people use for this is to say yes to those credit increases that the banks will try and sell you on.
Now, obviously you have to be very careful with this, if you are not a good credit user and you know if you’re not, then this trick isn’t for you. But if you are pretty responsible with the way that you use your credit cards, say yes to those offers, don’t be afraid to have more credit because there’s no harm in having a higher limit on your card, you do not need to use it, but it does make that percentage threshold higher and will add to your credit score.
What Represents a Hard Credit Check and a Soft Credit Check?
There are two types of credit checks, a hard credit check and a soft credit check if you’re checking your score just for your own interest or maybe you’re getting like a background check from an employer or like a landlord or something, it’s most likely a soft credit check. And this type of check does not affect your credit score a hard credit check happens when you’re actually asking to borrow money. And this does appear on your report and will actually put your credit score down a few points for a little while, lenders will take a look at the number of hard credit checks on your account because that can be an indication of whether you’re applying for just for what you need.
Or maybe you’re in a bad financial spot and you’re applying for too much credit too fast, the type of credit that you have also affected your score. So if you have a mix of different types of debts a credit card and a house and a line of credit, then it can really show companies that you’re able to balance and manage different types of payments at once, which is a good thing.
It’s not looked down upon if you don’t have different types of debt but it does add to your score if you have kind of a more diverse portfolio. If you want to improve your score. Try looking at all of the factors that I just mentioned, figure out where your weakest points are and try and work on improving those first. That being said, all these factors contribute differently to how your score is calculated.
Make sure that you’re also taking a look at which parts of the credit bureaus, keep in priority. Let me explain what I mean. credit bureaus that are calculating your score use two main formulas, the Vantage score and the FICO score the formula that the credit bureau chooses to use will really determine how much of those factors, I mentioned matters.
Here is a breakdown of the importance of each factor:
What is FICO formula?
Most of the credit card bureaus use FICO formula so I would concentrate on that one first. However, an important part of your credit score, no matter which formula is being used is your payment history. This definitely proves that you can be responsible with your money. So if you have a bad credit score work on building this first.
Always pay something on your credit cards, if you can’t make the minimum payment, call your credit card company or loan company, often they’re willing to work with you on some type of modified plan.
They just want to see that you’re trying, and make sure that you call them if you ever do miss a payment. If you’ve always been really great with your payments and you mess up one time, see if you can get it reversed. You don’t want that record on your credit. And if you’re a loyal customer the companies are often willing to do this at least once or twice, which can make a huge difference for you.
You are still with me? good .. hopefully, that wasn’t too overwhelming for you. I’m a pretty detailed person and I want to know all the information.
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