If you've spent a good chunk of your adult life feeling out of the loop on credit scores, you're not alone. A new survey from Capital One Canada revealed plenty of confusion among Canadians about what credit scores are, how they work and how to build them.
In the survey, almost half (49%) of respondents admitted they do not know what affects their credit score. Among those who did know, follow-up questions revealed a hearty mix of misconceptions and actual truths.
For example, 80% of Canadians believe payment history affects their score, which is true. But 30% believe your income can affect the calculation of your score, which it doesn't.
If you're feeling called out right now, don't stress. This cheat sheet has the info you need to pass Credit Scores 101, plus tools and resources to help you find the path forward in achieving your financial goals.
What is a credit score?
Credit cards aren't the only thing that impacts your credit score.
A credit score is a three-digit number that shows how responsibly you handle credit. Lenders, landlords and even some service providers may look up your score before deciding to work with you. Knowing your score can make money decisions feel a lot less mysterious and a lot more under your control.
How to check your credit score
Checking your credit score yourself won't hurt it. You can access it through your bank, free online tools or directly from the credit bureaus. Doing it regularly helps you spot mistakes, understand your habits, and see how your actions affect your score over time.
Capital One Canada's new Learning Hub is a great place to start if you want to learn more about what your score actually means.
What is a 'good' credit score?
Credit scores usually range from 300 to 900. The higher the number, the stronger your credit. Generally, a score above 750 is excellent, 700–749 is good, 650–699 is fair, and anything below 650 is considered poor.
A good credit score signals to lenders that you're a low-risk borrower, which can open doors to better interest rates, loans and more flexibility.
How are credit scores calculated?
Some very straightforward factors are used to calculate your credit score.
Credit bureaus calculate your score based on information they have about your financial situation. Their precise formulas differ, but they're generally weighing up the same facts about your borrowing habits, reported to them from the companies and banks you have credit with.
- Do you pay your bills on time?
- How much of your available credit are you using aka your utilization score?
- What mix of credit do you have (credit cards, phone bills, mortgages, etc.)?
- How often do lenders check your credit (hard inquiries)?
Payment history typically has the biggest impact, making up about 35% of your score. Keeping balances low, paying on time, and being consistent is the real secret sauce to a healthy score.
How to build your credit score
Building a strong credit score is straightforward, but it requires good money habits. Always pay your bills on time. Keep your balances low. Avoid opening too many new accounts at once. Use a mix of credit types responsibly. The key is consistency. Small, responsible habits over time can make a big difference.
Common myths about credit
Whether you're just starting out or rebuilding, Capital One Canada's survey revealed some misconceptions that are worth clearing up if you're committed to growing your credit score.
- Carrying a balance month to month doesn't improve your score, even though 59% believe it does. Paying your balance in full each month is always best.
- About 41% of Canadians think using 80% of your credit limit while paying on time increases your score, while another 41% aren't sure. In reality, it's smarter to keep your balances low — ideally under 30% of your limit.
- Income does not impact your credit score, even though 30% of Canadians believe it does. Higher income doesn't directly affect your score, but it can help you pay bills on time and keep balances low, which may indirectly improve your credit.
Putting good habits in place and sticking to them can have a big impact on your credit score. Monkey Business Images | Dreamstime
Credit doesn't have to be mysterious. Understanding your score, avoiding common pitfalls and practicing responsible habits can make your financial life feel a lot less stressful.
Capital One Canada's Learning Hub has tips and resources to help Canadians take charge of their credit and reach their financial goals. With the right knowledge, you can feel empowered — not trapped — and confident about your financial future.
To learn more about Capital One Canada and how they've provided credit to over 4 million Canadians, visit their website or follow them on Facebook or Instagram.
This content is for general informational purposes only and does not constitute financial, investment, legal, tax or accounting advice.