What Does it Mean to Have a Fair to Good Credit Score?

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Most Canadians may at least be familiar with the term “credit score”, but just how many actually understand how a credit score works? It may surprise many people to learn that credit scores range widely and can go from a negative ranking of “poor” all the way up to the stellar score of “excellent.” What’s more surprising still is that a majority of Canadians have a credit score of 672, putting them into the “fair” category, just a small margin away from “below average” (659 and below).

So just what exactly does a rating of good or fair mean, and how can it affect your financial life? While not a failing grade, a score of fair-to-good can certainly affect your personal finances in negative ways, including being offered higher interest rates, preventing you from renting the apartment of your choice and causing you to lose out on the best credit cards. We’ll explore the impacts of having an average score and show how you can go from a score of fair, to a solid good, to an even better credit score and vastly improve your personal finances. 

What is the average credit score in Canada?

According to 2022 data from over 2 million Borrowell members, the average Canadian credit score is 672, which would be classified as a fair score. While each individual lender may have their own metric as to what would be classified as “good,” generally scores anywhere from 713 up to 740 could fall within this range. A fair score usually ranges from 660 up to 712.

What your credit score means

Credit scores range between 300 and 900. Canada’s two credit bureaus, Equifax and TransUnion, determine your score based on a series of factors (see which factors below). How you’ve handled credit in the past will determine where you fall on the spectrum of poor to excellent credit. Here’s the different credit score ranges and the impacts of each.

Poor credit 300-574

If you’ve missed payments, had an account go to collections or have a bankruptcy on your file, you’ll likely fall into the poor range. It’s also possible to get into the poor category simply because you’re young or new to Canada and just haven’t had a chance to build your credit history. In this range, you may have a hard time getting a loan at traditional banks or credit unions, but there are lenders who specialise in accessible financial products. To compensate for the risk they take, borrowers are offered higher interest rates.

Fair credit 660-712 

In the fair range, you’ll have a bit more luck applying for loans and credit cards, however, there’s still plenty of lenders who will see you as too much of a credit risk. You’ll also have to pay higher rates when you get a loan. With credit cards, you may have the most luck getting approved when applying for secured cards.

Good credit 713-740 

If your credit score is in the good range, you’ll have a solid chance of getting approved for loans with a variety of lenders and shouldn’t have a problem getting basic, no-frills credit cards. You’ll be offered better rates than if you had a fair or poor score, however, you still won’t necessarily be offered a lender’s lowest rates as those are generally reserved for people with excellent credit.  

Very good/Excellent credit 741+

Depending on the lender, if your score is above 741, you’ll fall into the very good or excellent range (though some lenders may want a credit score of 760 and above to qualify as excellent). In this range, you’ll likely not have much difficulty getting approved for loans with the most favourable rates. You’ll also even start getting pre-approved for some credit cards and be able to successfully apply for Canada’s best rewards credit cards (as long as you fulfill the income requirements).

Do you know your credit score?

If you don’t know your credit score, there’s an easy way to get it for free from Borrowell. You can sign up in less than 3 minutes, with no credit card required. Once you've signed up, you can download your credit report and check your credit score whenever you want. Plus, you'll receive weekly updates, unique product recommendations and tips that may help improve your credit. Alternatively, you can get your credit report free (though there may be an additional fee to get your score) from either of Canada’s two credit bureaus.

How your credit score is determined

There are five main factors that Canada’s two credit bureaus use to determine your credit score:

Payment history

The biggest factor affecting your credit, payment history accounts for 35% of your overall credit score. If you make a habit of missing payments on loans or credit cards, your score will take a big hit. Even missing just one payment can reduce your ranking. Financial institutions want to see that you can manage your money well and that you take paying back your debt seriously.

Credit utilization

Making up 30% of your score, credit utilization is the amount of credit you’re currently using out of all your available credit. So, for example, if you have a balance of $500 on a credit card with a total credit limit of $1000, your credit card utilization would be 50%. Potential lenders want to see a total credit utilization rate under 30%. If you’re using too much of your available limit, it could signal that you are taking on too much debt.

Length of credit history

Accounting for 15% of your score, lenders prefer to see long credit histories that span years if not decades (the longer the better), so they get a better overall picture of how you manage credit accounts over time.

Credit mix

Credit mix counts for about 10% of your score. Lenders like to see how you’ve managed different credit products.

Credit inquiries 

This last factor is also worth 10% of your score. If there are lots of recent inquiries for new loans or credit cards (called hard credit checks) your score will decrease because it looks like you’re in financial trouble. Soft checks, which financial companies use to see if you “pre-qualify” for credit, don’t affect your credit score.

Public records 

If you have any credit accounts that have gone to collections or have a consumer proposal or bankruptcy on record, most lenders will be reluctant to loan out funds because they’ll assume there’s a good chance that you’ll renege on your debt. 

The benefits of having a high credit score

The benefits of having a high credit score can’t be underestimated. You’ll have much better success applying for loans and credit cards and — better yet — you’ll be offered the best interest rates, which can save you a significant amount of money. Your payments will also be more manageable because you’ll enjoy lower monthly payments. Additionally, you’ll finally be able to apply for some of Canada’s leading rewards credit cards and earn cash back or free flights and more. With a high credit score, your overall financial health will improve significantly and you’ll also have an easier time getting approved for mortgages or apartment rentals.

How to improve a fair credit score

Want to go from fair to fantastic? With determination and discipline, you can raise your score over time. Here are some tips to improve your ranking.

• Always pay your bills on time. If you find it hard to be organized or remember when payments are due, set up automated payments with your bank and that way you’ll avoid late or missed payments.

• Lower your balances. Remember that credit utilization is one of the most important factors affecting your score. If your balances are 30% or more of your available credit limit, consider debt consolidation. Consolidating debt can be a way to get back on track with your finances, minimize the number of payments you make each month and improve your credit score.

• Limit credit applications. Each time you apply for a loan or credit card, your score decreases a bit. Only apply for credit when you really need it.

• Monitor your credit. Check for errors or inaccurate information that could be impacting your score. Staying on top of your credit report is one of the easiest ways to protect your financial health.

Bottom line

If you’ve got a poor, fair or even a good credit score, there’s always room for improvement. The higher you can get your score, the easier it will be to get access to credit products like loans and credit cards with the best rates and benefits; which in turn makes it easier to save money and improve your overall financial situation.  

Dealing with multiple bills?

If you have multiple outstanding bills and debts, a debt consolidation loan may be right for you. Our trusted partner, Fairstone, offers personal loans for debt consolidation so you can simplify your finances and get started on a positive financial path. A debt consolidation loan from Fairstone can be used to pay off credit card debt, past due bills and car loans, and can also give you the flexibility of extra cash when you need it. 

The first step to seeing if a debt consolidation loan from Fairstone is right for you is requesting a loan quote. Enter a few simple details and find out if you qualify to borrow money – because Fairstone’s loan quote uses a soft credit check, getting a quote is quick and won’t affect your credit score.