Your credit score is a powerful tool that can impact many of your financial decisions. This three-digit may be the only thing preventing you from securing that loan you are targeting for a new house. With a good credit score, you can easily get approval from any bank or lender. Learning the ways on how you can boost your numbers will serve you well in the long run.
In Canada or elsewhere, the older you get, the better your creditworthiness is for lenders. This is because a huge percentage of your credit score is dependent on the length of time you have been using credit. Knowing the average Canadian credit score will help you set your benchmarks and build a strong financial foundation in the years to come.
What Are Credit Scores?
Banks and lenders use a credit score to make decisions on loans and credit offers. It helps estimate a person’s credit risk by evaluating their credit history. Credit scores are earned by having and maintaining credit lines. It takes time to build up good numbers, hence young people often find themselves at a disadvantage.
Older individuals tend to have higher credit scores simply because of the depth and length of their credit history. Your high score will help you qualify for a 30-year fixed mortgage, with lower interest rates and monthly payments. Its advantages are also not limited to mortgages. You can avail of the best reward credit cards with an excellent credit score.
What Is Considered A Good Credit Score In Canada?
Knowing what is the average credit score in Canada has its advantages. Canadians care about how they rank and measure up with others based on their credit rating. Typically, credit scores range anywhere from 300 to 900. According to TransUnion, the average credit score Canada is around 650, though this may vary from province to province.
With a credit score of 650 or higher, you can already qualify for a variety of financial products. The closer you are to 900, which is the highest credit score Canada, the more likely lenders are to approve you. Scores below 650 will make approval for new credits difficult. If you prefer, you may apply for bad credit loans with a reputable lender instead.
Your score may fluctuate depending on your credit-related transactions. For every dealing that you have, good or bad, your lender will report it to the credit reporting agency they are partnered with. In Canada, the two main bureaus are TransUnion and Equifax. Each transaction will get listed on your credit report for a predetermined time and will be part of your credit history.
Average Credit Score In Canada By Age
While age is generally not considered an important factor in credit score, research shows that there is, in fact, a correlation between the two. Credit scores tend to rise with age, as your experience with credit can boost your numbers. It is also important to note that 15% of your score is based on the length of time you have been using credit.
The average Canadian credit score is between 600 to 650, but this can change depending on several factors, like debt load and age. In 2018, Equifax reported that the average credit score Canada has dropped from ten years ago, in almost every age bracket. On average, consumers age 18 to 25 have a credit score a little over 690, while the eldest (65+) have over 740.
Meanwhile, the average credit score Canada by age 26 to 35 is around 695. Consumers whose age is between 36 to 45 of age have a score of 705, while the 46 to 55 age bracket has an average credit score of 718. Those aged 56 to 65 have a 738 score. The data shows that as consumers get older, their average credit scores also increase.
The 65+ age group having the best credit score Canada wide may be attributed to their long credit history. Since it takes time to build credit, older people have a better chance to create a profile with varied financial products. Length of credit history and product variety are key components in establishing credit scores.
How Does Age Affect The Average Canadian Credit Score?
While the youngsters typically have lower average credit scores compared to other age groups, this does not necessarily mean that they are bad with money. Aside from the length of credit history, there are other key factors that can cause credit scores to rise and fall, including debt owed and credit transactions. Young borrowers need to keep the following suggestions in mind if they want to build their numbers.
Avoid Late Payment
Your payment history constitutes 35% of your credit score. If you missed several credit card payments, they will be reflected in your credit report. Unreliable credit transactions typically happen among the 18 to 25 age group and this can be a reason for their lower credit score. Nowadays, online banking and automatic payments have helped borrowers a lot in terms of making the payment process easy and convenient.
Manage Your Outstanding Debts
30% of your credit score is based on the amount of credit debt you owe. If you have more unpaid debt, you will probably incur a lower credit score. Age is a factor in this since younger people are more likely to spend beyond their means. In comparison, the older generation are expected to have a reasonable amount of debts. If you want to build up your credit score, pay attention to the money you owe your lender.
Build Up a Positive Credit History
As previously mentioned, the length of your credit history matters. This is responsible for about 15% of your score breakdown. For the younger age group, this is a perennial challenge simply because they have not been alive long enough to fatten their credit history. They also lack the time to make responsible use of different credit products. No wonder, the average credit score Canada by age 18 to 25 is relatively low.
Limit Applications for New Credit
Another reason why your credit score is low is due to the number of your new credit applications. New credit accounts for 15% of your score. Whenever you apply, a lender determines your creditworthiness by pulling a copy of your credit report. Too many hard inquiries being performed on your report is not good. Points are deducted from your credit score for every time you receive a hard inquiry.
Manage Active Products Responsibly
The type of credit products you are using is accountable for 10% of your credit score breakdown. Basically, if you have more types of products that are active, the better it is for your credit score. Of course, it is important that you are managing all of them responsibly. Banks and lenders are less likely to approve applications for multiple types of credit products, particularly the expensive ones, if you are younger.
How To Get The Best Credit Score In Canada Based On Your Age
Group 1 (18 to 24 years old)
Your chances of earning the highest credit score Canada at this age are slim, but there are several things you can do to improve your standing. You can start off by creating healthy financial habits that will aid you in building your credit score in the coming years. Spend less and live within your means so you can save for your future.
Group 2 (25 to 35 years old)
This is the stage where you start a family, mortgage a house, or buy a car. All of these life avenues will cost you lots of money, but it is all good since you have, or on the way of having, a stable financial life. Nevertheless, saving should become one of your top priorities. Do not rely too much on your credit cards and start thinking about paying your consumer debts.
Group 3 (45 to 54 years old)
If you are a part of this age group, then you should have, at the very least, already paid off your car loan and mortgage. It is never too early to start planning for your retirement. With your children having their own jobs and ready to move out, you can finally invest your money into your registered retirement savings plan (RRSP).
Group 4 (55+ years old)
Many people of retirement age choose to downsize and sell their homes, preferring to live in a condo or an assisted living facility. There are fewer bills to cover and while credit score remains beneficial, it should not be part of your priorities any longer. It is best to continue saving for your retirement and create a plan that will protect your hard-earned money.
Why Should You Care About Getting The Highest Credit Score In Canada?
Earning the best credit score Canada is rewarding in many ways. With a strong credit rating, you can qualify for the most competitive interest rates, as well as lower finance fees on loans. You will also have much higher chances of approval for your loan and credit card applications.
Another major benefit of having a solid credit score is your capacity to borrow. Lenders typically depend on the amount of money you can borrow on your income and credit score. Start building early and maintain the overall health of your credit through the years. You will not regret it.
Frequently Asked Questions
What is the best credit score in Canada possible?
The highest credit score you can gain is 900. With this rating, you will have no problem getting lenders approve your loans. A credit score of at least 650, however, will already help you qualify for a variety of financial products in Canada.
What is the average credit score in Canada?
The average Canadian credit score is between 600 to 650, but this can change depending on several factors, like debt load and age. On average, Canadian consumers age 18 to 25 have a credit score a little over 690, while the eldest (65+) have over 740.
How do you check your credit score in Canada?
You may ask for a free copy of your credit file from Equifax Canada and TransUnion Canada, You may also use a free credit scoring site to check your credit score. Some banks and credit unions also offer credit scores free for customers through online banking sites or mobile apps.
What does your credit score mean in Canada?
Your credit score is an important tool that can influence your financial undertakings. Banks and lenders use a credit score to make decisions on whether to approve or not your loan applications. It helps estimate a person’s credit risk by evaluating their credit history.
What is a bad credit score in Canada?
The lowest credit score in Canada is 300, but anything below 650 is already considered risky by most lenders. If your rating is bad, this will make approval for new credits difficult. Before you even think of applying for loans, make sure that your credit score is healthy in order to qualify.