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Understanding your credit score

Ever wondered what exactly goes into your credit score? Learn the key factors that go into building a good credit score and what you can do to improve it.

Sep. 29, 2022 4-minute read

Think of your credit score as a grade, but instead of an exam, you’re being graded on how successful you’ve been at paying your debt.

So, why exactly should you care about having a good credit score? The simple answer is that it affects many parts of your financial life. Lenders look at your credit score before approving applications for credit cards, lines of credit, car loans and mortgages.

While there are a variety of credit scoring systems out there and your score can vary between each, the number will usually fall between 300 and 850. The higher your credit score, the better it is. Let’s look at the key factors that go into building a good credit score and what you can do to strengthen it.

What’s considered a good credit score in Canada?

The average Canadian credit score is around 650, which is looked at favorably by most lenders.¹If you’re curious about where you and your score stand, check out this helpful graphic below.

Poor: 300 – 659

Fair: 660 – 712

Good: 713 – 740

Excellent credit is in the 741 to 900 range.

Excellent: 741 – 900

Let’s get a bird’s eye view on your credit

Knowing what affects your credit score can help you improve and protect it. Let’s learn more with this general breakdown of what’s considered when calculating your credit score.

1. Payment history

Being more than 30 days past due on a payment could result in a drop in your score. But payments that become 60 or 90 days past due will certainly result in a negative effect! Paying your bills on time is the easiest way to establish good credit.

2. The length of your credit history

This length factors in the ages of your oldest and newest credit accounts. The older, the better, because it shows lenders you have more experience managing credit.

3. Your credit mix

Your credit mix has a small impact on your credit and includes the types of credit you borrow. Lenders want to see that you can balance revolving accounts like credit cards, mortgages, lines of credit and loans.

4. Applying for new credit

When you apply for things like new credit cards and personal loans, it has a small impact on your credit.

Give that number a boost

Whether you’re building your credit from scratch or working to brush up your credit history, check out these great habits that’ll help improve your credit score:

Pay your bills on time

This is a simple way to develop a good credit history. Make sure to set up pre-authorized payments if you’re concerned about keeping up with your bills.

Accept an offer to raise your credit limit

You might hesitate to accept an offer to raise your credit limit for fear of overspending but this can help improve your credit score! If you keep your spending the same but increase your limit, then you will decrease your credit utilization, which credit providers and financial institutions like to see. For example, if you increase your credit card limit from $4,000 to $5,000, but keep your balance at $1,000, your credit utilization will decrease from 25% to 20%.

Keep your oldest credit card

You might feel tempted to close an old credit card — maybe you’ve been approved for a new one with better perks — but keeping it open and using it occasionally will build your credit history, showing lenders your ability to consistently pay down your debts.

Diversify your credit mix

Lenders and creditors like to see that you have a diverse credit mix. They want to see that you’ve been able to manage different credit accounts — like a home equity line of credit, lines of credit, car and student loans and a mortgage — responsibly.

Review your credit report for any errors

Keep on top of your credit report for any discrepancies. We recommend checking at least once a year to not only keep up with your financial health, but also to protect yourself from identity fraud. CIBC clients can check their credit score in the CIBC Mobile Banking^® App. You can use this app for free — and it has no impact on your credit score. You can also contact one of Canada's credit bureaus to receive a copy of your credit report by mail, free of charge:

A step in the right direction

Building credit takes time and discipline. No matter what credit situation you’re in, the most impactful thing you can do for your credit is to create positive, consistent habits.

Source

¹ Equifax

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Understanding your credit score

What’s considered a good credit score in Canada?

Let’s get a bird’s eye view on your credit

1. Payment history

2. The length of your credit history

3. Your credit mix

4. Applying for new credit

Give that number a boost

Pay your bills on time

Accept an offer to raise your credit limit

Keep your oldest credit card

Diversify your credit mix

Review your credit report for any errors

A step in the right direction

Source

Need some financial advice?

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