What credit score range are you in and what does it mean?
You’ve surely heard the term before but let’s be honest: If asked, would you be able to explain what a credit score is? Do you know what credit score range your current score is in and what it means? If you’re unsure, just think of it like this: A credit score is like the marks you received on tests you took in school. Just as you would receive an A+ grade or a C- on your exams, there are good credit scores and bad credit scores.
What is a credit score?
A credit score is a three-digit number that generally falls somewhere between 300 and 900. It’s a fact-based way of helping money lenders decide your level of credit worthiness – a way for them to know how reliable you are when it comes to borrowing money and repaying your debt on time.
How is a credit score calculated?
TransUnion, one of the two major credit bureaus in Canada (Equifax is the other), says that your credit score is decided through a series of steps:
- Numerical values are placed on different sections of your credit report (sort of like how a teacher would mark each answer on a test).
- A mathematical formula is used to arrive at a final credit score (or, as in our school comparison, test answers are added up to arrive at a grade).
- Your credit history and patterns of repayment are also taken into consideration. This can include the amounts owing on your credit card(s), any outstanding loans, or even how long your accounts have been open. Click here for an infographic showing the factors that affect your credit score.
- Your credit card’s limit can be compared with your existing balance. Are you maxed out or is it under control?
What are some things a credit score is used for?
John Lawford, executive director and general counsel at the Public Interest Advocacy Centre, a non-profit organization that acts in the interests of consumers, warns that one simple financial decision can negatively impact your credit score – because this score will become the basis of the decisions made by lenders (and others such as employers and landlords) about your credit worthiness.
“It affects the rate at which banks will lend you money – and whether they will lend to you at all,” says Mr. Lawford.
Maxed out credit cards, unpaid bills, lines of credit, even old, forgotten credit cards are part of your record. “You may not get a credit card if your rating is too low,” he says.
How do I evaluate my credit score? Credit score ranges explained*
Source: TransUnion Canada
*Credit score numbers can have different ranges depending on who produces the score
If I have a low score, is it permanent?
The good news is that if your credit score is low, it’s not necessarily a permanent black mark on your record. “[Your credit score] can improve over time if you pay off your credit card,” along with any other lines of credit, says Mr. Lawford.
But to get a better score you need to apply this kind of discipline across every area of your finances. “If you’re thinking ‘Well, I’ll just pay my hydro bill two days late,’ don’t do that!” he says. “If you have the money two days early, pay it.” Closing unused or forgotten credit accounts is another way to improve your score.
How do I find out my credit score?
easyfinancial offers a credit monitoring program through TransUnion that gives you online access to check your credit report and score. You can also contact your credit bureau for further information:
Tel: 1-800-663-9980 (except Quebec)
Tel: 1-877-713-3393 (Quebec residents)
So, if you’ve ever had a credit card, line of credit, or borrowed from a cash lender, it’s a good idea to know the score by knowing your score.