My rendezvous with the three digits that define your worth: Credit Score in Canada

It was on a breezy Thursday morning back in 2017 (September 7) that I made my way out of the Toronto Pearson International Airport. A new immigrant on a permanent resident visa status and a long way ahead of me.

I come from a land where the word ‘credit’ is not something someone would be proud to talk about, being a cash driven economy, ‘plastic money’ or ‘credit cards’, and ‘digital payments’ are a fairly recent phenomenon in a country like India, and most certainly not the first or preferred medium for transactions or trade for day to day activities. It was only as recent as November 2016 when there was a push towards a rapid transformation towards becoming a cashless economy.

That said, little did I know that ‘credit’ or more precisely a ‘credit score’ is what defines one’s worth in the Great White North. Basically, what it meant for me was - going from being a guy who’s never owned a Credit Card in his adult life, to adopting not just the culture of using ‘Plastic Money’ and ‘Digital Money’ but also significantly reducing the use of cash transactions or as you say the Loonie.

In Canada, your credit score is a 3-digit number ranging between 300 to 900 that’s calculated by Equifax and TransUnion. Each of these credit bureaus has its own proprietary algorithm for calculating credit scores, so your 2 scores may not exactly match.

Why should you care about your credit score?

So, why does any of this matter? Is having a good credit score in Canada really that big of a deal? Well, it is.

A good credit score in Canada enables you to secure more and different kinds of credit, and often at better interest rates.

• You have a better chance of approval when you apply for credit, like: a mortgage, car loan, line of credit, credit card, etc.
• You’re offered the most competitive (low) interest rates because companies are betting you’ll be paying your balance on time and as scheduled.
• You can qualify for higher credit limits or bigger loans than you otherwise might.

What happens if you have a bad credit score?

If you have a bad or poor credit score of 559 or less, you could suffer some unfortunate consequences, including:

• Rejection of your credit applications.
• Possible refusals by landlords, cell phone providers, and maybe even potential employers (who may check your credit score as part of their hiring process).
• Costly interest rates as a buffer for the lender who is taking increased risk by extending credit to you.

My path to a 800+ Credit Score

So how is it that someone with a credit history of merely 36 months in the Great White North managed to break into the elite club of folks with a Credit Score above 800? [~17% of 37.7 million Canadians]

The answer is very simple and yet an alien concept to millennials my age - a disciplined credit diet. Told ya, an alien concept!

Here are four steps I took to work towards a Credit Score of 800.

1. Paying bills on time: One of the most important and often ignored steps is to pay every bill on time, every time. Even one late payment can potentially lower your score by 100 points.
2. Keeping my credit utilization as low as possible: I have always stayed under 30% of my total credit limit each month (for all those 36 months) even better if you can manage to keep it under 10% (Probably would have been for 30 out of the 36 months).
3. Using different types of credit accounts: Your overall credit mix is another major component of your score. Lenders want to know that you can handle different types of credit products and look favorably on those who have several credit accounts open. So in my case the accounts are: my mortgage loan and my sole credit card. However, be careful about opening too many new accounts at once. Lenders view multiple applications for credit cards negatively, so only open new accounts if it’s necessary.
4. Monitoring my credit report for any errors: It’s important to monitor your credit report at least annually (Personally, I do it at the end of every month) to make sure there are no errors. If you see an error, you need to dispute it and clear it up as soon as possible. Otherwise, the error could negatively impact your credit score.

How does my credit score compare in Canada?

So, now that you know my credit score in Canada, you must be wondering how it compares to other residents in Canada eh? Well let me break it down for you.

If we look at Credit Scores by income, the average scores for the below mentioned income ranges according to creditcardGenius is as follows:

• $0 - $25,000 - 640 Credit Score
• $25,000 - $50,000 - 667 Credit Score
• $50,000 - $70,000 - 720 Credit Score
• $75,000 - $100,000 - 754 Credit Score
• $100,000 - $150,000 - 773 Credit Score
• $150,000 - $300,000 - 788 Credit Score

If we look at Credit Scores by age, the average scores for the below mentioned age ranges according to creditcardGenius is as follows:

• 18-24 years old - 691 Credit Score
• 25-34 years old - 711 Credit Score
• 35-44 years old - 708 Credit Score
• 45-54 years old - 705 Credit Score
• 55-64 years old - 740 Credit Score
• 65-100 years old - 769 Credit Score

I have highlighted the two respective cohorts that I fall under based on my income and age, so with a Credit Score of 805, I am very proud of reaching those three digits with the disciplined credit diet that I swear by!

What's your score?