Lenders, creditors, and other organizations use your credit as a crucial tool to assess your ability to pay bills and debts. Therefore, it may be challenging to get approved for a personal loan, credit card, or even an apartment rental if you currently have bad credit. However, it is not too late to build better financial habits and start using credit responsibly.
A credit score is a three-digit number that represents your creditworthiness, or your likelihood of paying back a debt on time. In Canada there are two main credit bureaus Equifax and TransUnion, that calculate your credit score based on a variety of factors, including your payment history, debt-to-income ratio, credit history, and new inquiries.
A bad credit score in Canada is generally considered to be a score below 560. This means that you are considered a higher risk to lenders, and you may have difficulty getting approved for loans, credit cards, and other forms of credit.
There are a number of reasons why someone might have a bad credit score. These include:
- Missed payments: This is one of the most common reasons for a bad credit score. If you miss payments on your credit cards, loans, or other bills, it will negatively impact your credit score.
- High debt-to-income ratio: This means that you have a lot of debt compared to your income. Lenders see this as a sign that you may not be able to afford to take on more debt.
- Short credit history: If you don’t have a long credit history, lenders may not have enough information to assess your creditworthiness. This can make it difficult to get approved for credit.
- Too many inquiries: Every time you apply for credit, a hard inquiry is placed on your credit report. Too many hard inquiries in a short period of time can negatively impact your credit score.
Numerous actions can be taken to raise your credit score if it is low. These include:
- Make all of your payments on time: This is the most important thing you can do to improve your credit score.
- Pay down your debt: The less debt you have, the better your credit score will be.
- Become an authorized user on a credit card with good credit: This can help you build your credit history without having to open a new account.
- Dispute any errors on your credit report: Errors on your credit report can negatively impact your credit score.
Increasing your credit score requires work and patience, but the results are well worth the effort. You can save money on interest rates, insurance premiums, and other costs by having a high credit score. Additionally, it may make it simpler to be accepted for credit cards and loans.
How to Improve Your Credit Score in Canada
If you have a bad credit score there are a number of things you can do to improve it. Here are a few tips:
- Make all of your payments on time: This is the most important thing you can do to improve your credit score. Even one late payment can have a negative impact.
- Pay down your debt: The less debt you have, the better your credit score will be. Focus on paying off high-interest debt first.
- Become an authorized user on a credit card with good credit: This can help you build your credit history without having to open a new account. Just make sure that the primary cardholder is someone you trust who will use the card responsibly.
- Dispute any errors on your credit report: Errors on your credit report can negatively impact your credit score. You can dispute errors with the credit bureaus for free.
- Get a secured credit card: A secured credit card is a good option for people with bad credit or no credit history. With a secured credit card, you have to make a security deposit, which is typically equal to the credit limit. This deposit protects the lender in case you default on your payments.
- Use a credit monitoring service: A credit monitoring service can help you track your credit score and keep an eye on your credit report for any errors.
It takes time and effort to improve your credit score, but it is definitely worth it. A good credit score can save you money on interest rates, insurance premiums, and other expenses. It can also make it easier to get approved for loans and credit cards
Frequently Asked Questions About Bad Credit Scores in Canada
- What is a bad credit score in Canada?
- What are the reasons for a bad credit score?
- How can I improve my bad credit score?
- What are the benefits of having a good credit score?
- What are some tips for maintaining a good credit score?
Additional Resources
- Equifax Canada: https://www.equifax.ca/
- TransUnion Canada: https://www.transunion.ca/
- Credit Canada: https://www.creditcanada.com/
- Canadian Foundation for Credit Counselling: https://www.cfcc.ca/
P. S. Since I’m not a financial advisor, you shouldn’t take my advice on any financial matters. Please consult with a qualified financial advisor before making any financial decisions.
What Is Bad Credit?
In Canada, both TransUnion and Equifax provide consumers with credit scores that range from 300 to 900. Your score will fall somewhere in this range depending on how you’ve used your credit in the past. Generally, credit scores that fall below 560 are considered bad credit.
| 760+ | Excellent |
| 725 – 759 | Very Good |
| 660 – 724 | Good |
| 560 – 659 | Fair |
| 300 – 559 | Bad |
Keep in mind that Equifax and TransUnion are two separate companies. This indicates that because the two companies use different credit scoring models, your credit score from one may differ slightly from the other.
What Causes Bad Credit?
The way you use credit and the credit scoring model that is used to determine credit scores have an impact on your credit scores. Therefore, everyone’s credit is either good or bad, based on a set of reasons unique to that person. Just remember that it is not impossible to get a loan with bad credit.
That being said, there are several general reasons why the average person’s credit may be bad:
- Missed payments
- Late payments
- Maxed out credit cards
- applying for an excessive number of credit cards quickly
- Cancelling your credit cards
- Charging purchases you can’t afford to buy with cash
- Taking on loans you can’t afford
- Defaulting on loans