What Is a Credit Score Anyway, and How Will it Help or Hinder Me?

Date posted: March 18, 2016

Photo Credit: lendingmemo

Many years ago, if you wanted to borrow money from a lender, the lender (usually a bank) would try to determine how trustworthy you are. They would contact your previous lenders, consult with your references, look at your balance sheet, and then if all of those sources came back positive, your bank would lend you money.

That process took a lot of time and often left borrowers without enough lending history or references out of options. The credit score was developed to streamline this process and show lenders at a glance how creditworthy you are.

Your credit score is a numerical expression of your creditworthiness. It is a number between 300 and 900, and it tells your bank whether or not to they should lend you money. Landlords and even employers sometimes also use your credit score as a reflection of your financial situation.

Factors that Determine Your Credit Score

Five factors impact your credit score. They are:

Your payment history on all of your accounts. Making late payments will lower your credit score. For example: If you are late on your credit card payments, or you have an overdue cell phone bill.

The balances on your credit cards as a percentage of their limits. A nearly maxed out credit card will negatively impact your credit score. Lenders see this as a red flag that may signal financial distress. Ideally, your credit card will never have more than 35% of the balance.

For example, if you have a $5,000 credit card, you shouldn't let the balance go over $1,750.

Another factor that affects your credit score is the length of your credit history. A long history is better than a short one.

The number of times banks have checked your credit score recently will also affect it. More than three inquiries at once will affect your credit score because it is a red flag that you may be in financial trouble. If you are shopping around for a new credit card, tell your loan officer not to pull your credit score until you have given them your express permission.

The types of credit you have. Having several types of credit illustrates that you can successfully manage multiple financial responsibilities.

For example, I had student loans, a car loan, a credit card, a line of credit, and a cell phone account. My credit score is higher than my husband’s because he has only one credit card.

How to Check Your Credit Score

There are two credit reporting agencies in Canada – Equifax and Transunion. Both companies will allow you to pull your credit score from them by mail here and here.

You can also use the company websites to pay to see your credit score instantly. Both Equifax and Transunion will also show you your on-file credit history for a fee. It’s a good idea to check your credit history once a year to make sure there are no mistakes that could negatively affect your score, and to guard against identity theft.

What is a Good Credit Score

As we mentioned above, a credit score is a number between 300 and 900. A score below 600 means you’ll have trouble accessing credit from any lender. A score below 680 means you won’t be able to obtain credit from a traditional lender like a bank, but you’ll be able to use secured credit cards and non-traditional lenders. A score between 680 and 750 is average and will give you access to traditional lenders, and anything above 750 is considered excellent and will give you access to the lowest interest rates from traditional lenders like banks and major credit card companies. Here is a table that breaks it down:

Credit Score

   What It Means to You


   Trouble accessing any credit


   Non-traditional lenders, higher interest rates


   Traditional lenders, normal interest rates


   Traditional lenders, best interest rates

How to Improve Your Credit Score

If you’ve pulled your credit score using the methods outlined above and you realize that it’s low, never fear. There are several ways to improve your credit score.

First, you should check your credit history to make sure it is accurate. If there are mistakes, take steps to inform both credit reporting agencies.

Next, start proving to lenders that you are a responsible borrower. Use your existing credit cards responsibly and make payments every month. If you don’t qualify for a traditional credit card, you can use a secured credit card. You can qualify for a secured credit card if you have a very low credit score, but you will need to pay a deposit equal to the credit card's limit.

Minimize the number of times lenders pull your credit score. Don't apply for many different credit cards at once.

Finally, use all types of credit responsibly. Make all of your payments on time, don’t carry more than 35% of your credit limit as a balance on any credit cards and never, ever go over your credit limit.

These aren't overnight fixes, and it will take time to rebuild a blemished credit score. But a good credit score is an important piece of your financial identity. A good credit score gives you access to the best lenders and interest rates and is a measure of your overall financial trustworthiness. It's worth taking care of.

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