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Understanding Credit Scores in Canada

Updated: Aug 17, 2023

Whether you are already in Vancouver or still planning to join us, you must understand what a credit score is and how to ensure you have a good one.

First, let’s define what a credit score is. It is a 3-digit number ranging between 300-900 that a credit bureau calculates and assigns to you based on information they have about you. It is also the number lenders look at to determine the probability that you’ll be able to pay rent, a car loan, a credit card or a mortgage. It’s based on credit history, and there are two credit bureaus in Canada, TransUnion and Equifax.

How to start your credit score

Getting a credit card is the easiest way to start your credit score. As a newcomer, you need a lot of catching up to do compared to the locals. Starting a repayment history such as credit card or phone bills will show the credit bureau you have repaying capacity. The rule of thumb here is simple, you pay your bills on time. Good. You don’t pay your bills on time. Bad.

How to improve your credit score

Pay your bills on time! Keep your credit card balance below 35% of your available credit. For example, if you have a credit card with a $1000 limit, try to keep the outstanding balance below $350. Canada makes it easy to borrow money; once you start, it can get out of control. So, be cautious. Always borrow what you can pay.

An additional step is to check your credit report regularly to make sure the information is accurate. Your bank’s app should have that feature included once you have a credit card for a minimum of 6 months.

How your credit score is calculated

There are many factors to understand how credit scores are calculated. None are straightforward. To be honest, sometimes it feels like the whole thing is a myth 😜. Nonetheless, here is a list of known factors that are used to calculate your score:

  • Payment history for your loans and credit card

  • How much you owe on your credit accounts

  • How long has your account been open

  • Your credit mix (e.g., credit cards, mortgages, lines of credit)

  • How much credit do you use and have available

  • How often and how recently you’ve applied for credit

Why you should care about credit score as a student

We wanted to talk to you about this topic because having a credit score can impact your life as a student and after graduation if you decide to stay.

As a student, it’s important when you look for rentals. If you are tired of renting rooms in a house and want to get a new apartment with a friend, the property management companies will try to check your credit score to see if you are someone who can pay them. Not having this score means your application will be declined. It’s also useful when you want to buy a new laptop or phone.

After graduation, it’s also important because you might want to ask for a loan to start your business, buy a car, house, or that boat your inner sailor has been asking you for.

Where can you learn more about credit?

Like we said before, the whole thing is a bit of a myth, so you may want to talk to a financial advisor at your bank to learn more about it. Additionally, you can visit the credit bureau websites for TransUnion and Equifax to learn more about credit reports, credit scores and credit monitoring.

Finally, the government of Canada also has information on managing debt, credit cards, mortgages, lines of credit, and credit reports that you can find here.

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