What do renting an apartment, financing a vehicle, and getting approved for a credit card all have in common?
The answer: your credit score plays an important role in all three. A higher score could help you land your dream apartment, upgrade the family minivan, and obtain a secure way to make online purchases like flights and hotels.
Let’s dig into what a credit score is, why lenders and landlords use it, how to check it, and what steps you can take if you’re looking to improve it.
What is a credit score?
Your credit score represents an assessment of your ability to repay borrowed money or fulfill any financial obligations you’ve made. The score itself — a three-digit number between 300 and 900 — is based on your financial history.
If your score is high, lenders have a lot of trust that you’ll pay back the money you’ve borrowed. If your score is low, lenders view you — and your ability to pay back a loan or pay rent on time — as more of a risk.
What credit score numbers mean and who uses your credit score
Excellent (800–900)
Good (700–799)
Fair (650–699)
Poor (600–649
Very poor (300–599)
Your bill payments, your credit usage (also known as credit utilization, or the amount of credit you owe compared to how much you have available), the different kinds of credit you’ve obtained, how long you’ve been using credit, and how often you apply for new credit all affect your score.
There are two main credit bureaus in Canada — Equifax and TransUnion — that collect and compile information about your financial behaviour, loans, payment histories and credit. They produce credit reports that include your score, which lenders or companies then use to make decisions about your application to borrow money, buy a home, or rent an apartment.
It's important to note: you need to give a potential lender permission to request your credit report and score.
While both credit bureaus work with the same information, your score might differ slightly between the two. They don’t share their exact formula for calculating your score with the public.
But your credit score isn’t fixed. As your financial circumstances change, so will your credit score. If you’re paying bills on time and meeting the financial obligations you’ve agreed to, it could go up.
If you’re paying your cellphone and credit card bills late, not paying them at all, getting calls from collections agencies or declaring bankruptcy, it will almost certainly go down.
Why do I need a good credit score?
- A mortgage lender might give you a lower interest rate if you have a higher credit score.
- A landlord might use your credit score to determine if they believe you’re capable of paying your rent each month and approve your application to rent.
- A credit card company might approve you for a card that has better perks or rewards.
- An employer might check your credit score before hiring you, especially if the role involves managing finances.
- A car dealership might be able to get you an interest rate that makes your monthly payment on a reliable vehicle fit your budget.
Simply put, a good credit score makes getting approved for mortgages, loans, lines of credit, car financing, and housing rentals much easier. You’ll qualify for both lower interest and insurances rates, and you might be able to access more credit to meet your needs. A landlord might be more likely to choose you as a tenant or approve your application quicker if you’ve got a better score.
Having a lower score doesn’t mean you won’t qualify for a mortgage or loan, but you might need to have a larger down payment or be willing to pay much higher interest rates. A landlord might still be willing to rent to you, but you might be stuck handing over a bigger deposit upfront.
You might not be able to access a higher credit card limit if your credit score is low, which could affect your ability to manage your cash flow or cope with sudden emergency expenses.
If you’re a young adult or new to Canada, establishing a credit history is your first step toward a good credit score.
Tips on how to improve your credit score
1. Start by looking up your credit score: When you inquire about your own score, it’s called a “soft” check and doesn’t have any negative impact on the score itself. Knowing where you stand will help you plan for how to shift your financial behaviour to improve your score. (When it’s a lender or a company asking to review your credit report, that’s called a “hard” check and too many of these all at once could impact your score).
2. Pay all your bills when they’re due: If you routinely miss the due dates, consider setting up pre-authorized payments or calendar alerts to remind you to pay.
3. Catch up on missed payments: If you do miss a payment, commit to getting caught up as soon as possible. Your overall financial behaviour matters more than one missed payment.
4. Get a credit card and pay it off every month: If you’re still building your credit history, use your credit card for purchases you know you can easily pay off to establish a financial history.
5. Keep tabs on your overall debt load: Mortgage debt, personal loans and credit card balances can easily add up. Monitor your total debt to ensure it doesn’t become unmanageable.
How can I protect my credit score? Avoid these five things:
1. Close your credit card account: Even if you aren’t using the credit card anymore, you don’t actually need to close the account. Doing so can affect your credit utilization, which just means how much you owe on a card relative to your credit limit. The goal is to generally keep your credit utilization at 30%. If you have two credit cards, each with a $4,000 limit, and a balance of $2,000, you’re under the 30% threshold.
But if you cancel one of those cards, your $2,000 balance puts you at 50% credit utilization, which can negatively affect your credit score.
2. Apply for too much credit: Each time you apply for credit, the lender or the company will ask for a credit report. If too many inquiries happen at once, some lenders will see this as a red flag because it might indicate you’re under some financial pressure.
3. Let your bills go to collections: If you don’t pay your bills on time repeatedly, your debt could be sent to collections, which will bring down your credit score.
4. File for bankruptcy: Few people file for bankruptcy without considering the consequences, one of which is a very low credit score. Before deciding to file for bankruptcy, which will remain on your credit report for six or seven years, consider whether a debt repayment plan or consumer proposal could work for you instead.
5. Stop using credit for a long time: Having a long history of using credit successfully will have a positive impact on your credit score. Interrupting that history, or only using credit occasionally, will likely bring your score down.
Where can I get my credit score?
Your credit score belongs to you, so it’s important that you know what it is. TD recently launched a new tool that enables customers to check their credit scores for free via the TD Mobile App. This capability provides customers with access to the TransUnion CreditView Dashboard to monitor personal credit history.
Available at no additional cost, the experiences enable customers to check and report possible inaccuracies in their credit score, see trending history, and simulate how different variables could impact their credit score.
For more information, visit the landing page on TD.com. To access this tool in the mobile app, click "more" at the bottom of the screen and then "Credit Score."
You can also request your score from Equifax or TransUnion. You can also access your credit score range directly via a new third-party service provided by Interac® Corp.
Using the same login information you use with the bank, the app will give you free, secure access to your credit score range. And the check itself won’t affect your score.