10 Things Newcomers Need To Know About Credit Scores In Canada, According To An Expert

What is a credit score?

A credit score is a three-digit number that is designed to represent your creditworthiness – or how likely you are to make payments on time.

"Your credit score is essentially a history of record that lenders use to help them see how reliable you are when you borrow money," Macmillan explained.

"The longer credit history you have -- the better -- as it can explain how you use credit responsibly over a period of time and will help you get approved as you apply for other financial products."

What's a good credit score in Canada?

In Canada, your credit score range can be anything between 300 and 900, with 300 being the lowest and 900 being a perfect score.

According to Macmillan, what constitutes a good credit score varies by lender.

"The good range for most is typically in the 660 to 724 range," she said.

The higher you go, the better it is. Anything closer to the 300 mark is considered more risky to lenders.

How can a newcomer improve their credit score?

A big part of building a good credit score depends on applying for credit and then using it wisely.

Luckily, many banks offer newcomer credit cards for permanent residents, students and temporary workers.

So, you might be eligible to apply for one, even if you have no credit history.

That being said, if you're having issues getting an credit card, you can always apply for a secured credit card, said Macmillan.

What that means is you put down a security deposit with the credit card company, and you can basically use that amount to build your credit.

"Other things you could do is get a retail credit card (where you apply with a non-financial institution) or get joint cards with family members who have good credit," Macmillan advised.

How much credit should you spend to improve your score?

Once you've received your credit card, you can start using it to improve your credit score.

Macmillan advised people to be aware of their credit limit and how much they've used per month.

"Typically, we say that you shouldn't spend more than 30% of your total credit per month. So, for example, if you have $3,000 of available credit, your monthly balance should never exceed $900."

"If you do hit 30% for a sustained period of time, that can impact your credit score."

What impacts your credit score?

There are a lot of things that can have an impact on your score.

"Anytime you apply for a credit card, that will impact your credit score," says Macmillan.

"Missing payments is the biggest one, though," she said. "If you miss a payment on your credit card or a loan or things like that, that will have an impact on your credit score."

What are common mistakes newcomers make?

Missing those credit card payments is a big one, but there are other mistakes newcomers to Canada should be wary of.

For example, Macmillan recommends avoiding payday loan organizations where possible.

"Payday loan organizations don't require borrowers to have any credit history, but they have extremely high interest rates on their loans and sometimes trap newcomers in the cycle of debt," she said.

"And then the other one would be to not apply for credit often. So, when you look into getting a loan for a new car, opening a credit card, and then starting a new cell phone plan, for example, try to space these out a bit."

How often should you make credit card payments?

There is no right answer here, and when you pay each month won't directly impact your credit score.

"A lot of people have different preferences. For example, I have a friend who hates the idea of having debt. He will make a charge on his credit card and then go home and pay it almost immediately," Macmillan explained.

She added, "But I wait for my statement, or pay in the middle of the month if I happen to go online."

"I highly recommend making the minimum balance that's due and ideally paying off your full credit card amount to ensure you're not racking up any interest payments or having it impact your credit history."

How much time does it take to improve your credit score?

How quickly your credit score improves isn't based on time itself, but your credit behaviour during that time.

"You can improve your credit score relatively quickly, but it all depends on what has been filed against you," Macmillan said..

"So bankruptcy will have a different impact than if you've missed two credit card payments, for example."

She continued, "What we recommend for people to aspire to, and this is where it becomes easier to get loans and apply for credit cards, is to have a number in the 660 to 800 range."

"The aspiration for anyone who is below that is to get to 660 and then, of course, keep moving up and above that echelon to the 'very good' or 'excellent' range as well."

How to check your credit score in Canada

There are many different sources that can help you monitor your credit score in Canada.

You can access your credit report online from Equifax and TransUnion, which are two of the major credit bureaus in Canada.

Borrowell and Credit Karma are two such resources that Macmillan also suggested.

Can you check your credit score for free?

You are entitled to access your credit reports online for free and can do so via sources like Equifax and TransUnion.

If you're worried that checking your credit report online will have a negative impact on the credit score, don't be.

Requesting your own credit report will have absolutely no impact on your credit score.