What Is a Good Credit Score in Canada?

September 25, 2024 rwhite961

In Canada, your credit score plays a pivotal role in determining your financial health. Whether you are applying for a mortgage, securing a car loan, or even signing up for a new credit card, your credit score significantly impacts the decision-making process for lenders. But what exactly is considered a “good” credit score, and how can you ensure your score remains strong?

This comprehensive guide will cover what constitutes a good credit score in Canada, how your credit score is calculated, and tips to improve and maintain a high score.

Understanding Credit Scores in Canada

A credit score is a numerical representation of your creditworthiness, usually ranging from 300 to 900. Credit bureaus like Equifax and TransUnion calculate this score based on your financial history. Lenders use this score to assess your risk of defaulting on loans and credit cards.

In general, the higher the score, the better your chances are of securing loans, credit cards, and other financial products at favorable terms. Credit scores are broken down into several ranges:

Poor:300 to 579
Fair:580 to 669
Good:670 to 739
Very Good:740 to 799
Excellent:800 to 900

A credit score of 670 and above is typically considered “good” in Canada, while a score above 800 places you in the “excellent” category.

How Is Your Credit Score Calculated?

Several factors go into calculating your credit score, each with varying degrees of importance. Here are the main components that contribute to your score:

Payment History (35%): On-time payments are crucial. Lenders prefer borrowers with a consistent history of making payments on time. Late or missed payments can negatively impact your credit score.

Credit Utilization (30%): This refers to how much of your available credit you’re using. It’s best to keep your credit utilization below 30%. For example, if you have a $10,000 credit limit, try to use no more than $3,000.

Credit History (15%): The length of time you’ve had credit is also a factor. A longer credit history generally reflects positively on your credit score.

Credit Mix (10%): Having a variety of credit types, such as credit cards, auto loans, and mortgages, can positively impact your credit score.

New Credit Inquiries (10%): When you apply for new credit, it results in a hard inquiry on your report. Multiple inquiries within a short period can lower your credit score.

Why Your Credit Score Matters

Your credit score affects several aspects of your financial life, including:

Loan Approvals:A high score increases the likelihood of approval for loans and credit cards.
Interest Rates:Lenders offer lower interest rates to individuals with higher credit scores. This can save you a substantial amount over time, especially on large loans like mortgages.
Credit Card Offers:With a good credit score, you have access to top-rated cash back credit cards like the American Express Cobalt Card, which offers excellent rewards for dining and travel.

What Is a Good Credit Score for Specific Financial Products?

When it comes to specific financial products, different lenders have different thresholds for what they consider a “good” credit score.

Mortgages:A score of 680 or higher is often required to secure a favorable mortgage rate.
Credit Cards:Most premium credit cards, such as the TD Cash Back Visa or Platinum Card Amex Canada, typically require a good to excellent credit score.
Auto Loans:A score of 660 or higher can help you secure a lower interest rate on an auto loan.

Top Cash Back Credit Cards for Those with Good Credit

Once you have established a good credit score, not only do you gain better access to loans and financial products at more favorable terms, but you also unlock a variety of premium credit card offers that come with enhanced rewards. A good credit score often opens doors to cards with higher cash back rates, travel perks, and more tailored rewards programs. Let’s take a closer look at some of the top-rated cash back credit cards in Canada that are available for those with good to excellent credit scores.

1. American Express Cobalt Card

The American Express Cobalt Card is widely known for its lucrative rewards, especially when it comes to dining and travel. Designed for students, young professionals, and those who enjoy experiences like dining out or traveling, the Cobalt Card allows you to earn points on everyday purchases.

One of the standout features of the American Express Cobalt Card is its ability to earn 5 points for every dollar spent on dining, groceries, and food delivery. This makes it a great option for individuals who frequently spend on food-related categories. Additionally, the card offers 2 points per dollar on travel-related purchases such as transit, taxis, and ridesharing services, including flights and hotel bookings.

2. TD Cash Back Visa

The TD Cash Back Visa is a reliable option for individuals looking to maximize cash back on essential purchases like groceries and gas. This card offers a straightforward and generous rewards structure, with up to 3% cash back on eligible grocery and gas purchases.

In addition to the 3% cash back on groceries and gas, the TD Cash Back Visa provides 1% cash back on all other purchases. This makes it an attractive option for individuals who spend heavily on groceries or frequently drive, as they can easily rack up significant savings on everyday essentials. The card also includes purchase protection and extended warranty coverage, adding an extra layer of security for cardholders.

3. Tangerine Cash Back Credit Card

The Tangerine Cash Back Credit Card stands out as one of the best no-fee cash back credit cards in Canada. What makes this card unique is the ability for cardholders to customize their rewards categories. The card offers 2% cash back on purchases made in up to three categories of your choice, while all other purchases earn 0.50% cash back.

The available categories include dining, groceries, gas, entertainment, and more, giving you the flexibility to align your cash back earnings with your spending habits. For instance, if you spend a lot on groceries, restaurants, and recurring bills, you can select those categories and earn 2% on all those purchases. This customization allows you to maximize your rewards based on your personal lifestyle and needs.

4. Simplii Cash Back Visa

The Simplii Cash Back Visa offers a generous 4% return on restaurant and bar purchases, making it a great option for foodies who enjoy dining out. This card also provides 1.5% cash back on groceries, gas, and recurring bill payments, and 0.50% on all other purchases.

With no annual fee, the Simplii Cash Back Visa is an appealing choice for individuals who want to earn significant cash back without the burden of additional costs. Similar to the Tangerine Cash Back Credit Card, the Simplii Cash Back Visa offers a practical rewards system without the complexity of rotating categories or points systems. Your cash back is simply applied as a statement credit, helping you save money with minimal effort.

How To Improve Your Credit Score

If your credit score isn’t quite where you’d like it to be, don’t worry. There are several strategies you can employ to improve it over time.

1. Pay Your Bills on Time

Since your payment history accounts for the largest percentage of your credit score, ensuring you pay all your bills on time is crucial. Setting up automatic payments can help you avoid late payments.

2. Keep Your Credit Utilization Low

As mentioned earlier, keeping your credit utilization below 30% can significantly boost your score. If possible, pay off your balance in full each month to avoid interest charges and keep your utilization in check.

3. Monitor Your Credit Report

Regularly reviewing your credit report for errors can help you maintain an accurate credit score. Mistakes such as incorrect account information or duplicate entries can drag down your score. Be sure to dispute any inaccuracies with the credit bureau.

4. Limit New Credit Inquiries

Only apply for new credit when absolutely necessary. Each hard inquiry can slightly lower your score, so be strategic when applying for new credit cards or loans.

5. Maintain a Mix of Credit Types

Lenders prefer to see a mix of revolving credit (credit cards) and installment credit (auto loans, mortgages). If you’re able to responsibly manage multiple types of credit, it can boost your score.

Mistakes To Avoid

While working to improve your credit score, be mindful of common mistakes that could unintentionally hurt your score.

Maxing Out Credit Cards:Even if you pay off your balance, maxing out your credit card regularly can negatively impact your utilization ratio.
Ignoring Small Balances:Failing to pay off small balances can still lead to interest charges and missed payment penalties, which harm your credit score.
Closing Old Accounts:Closing an old credit card account can reduce the length of your credit history, which could lower your score.

How To Maintain a High Credit Score

Once you’ve achieved a good or excellent credit score, maintaining it requires consistent financial responsibility.

Continue Making On-Time Payments:Even one late payment can bring down a high score.
Keep Credit Accounts Open:Even if you’re not using an old credit card, keeping the account open contributes to a longer credit history.
Avoid Large Purchases on Credit:Try not to charge large amounts to your credit cards if you cannot pay them off quickly. Large balances can hurt your credit utilization ratio.

Conclusion

Take control of your financial future by monitoring your credit score regularly and using the right credit cards to build a healthy credit history. Explore the top-rated cash back credit cards and find the perfect fit for your lifestyle today! Great Canadian Rebates helps you find the right options.