Your credit score in Canada, explained

Your credit score follows you into more places than you might expect. A lender looks at it before approving a credit card, car loan or mortgage. A landlord may ask to check your credit before offering you an apartment. Some employers and insurers look at credit information too, with your consent and within the limits of provincial law.

Yet a lot of people in Canada have never looked at their own credit report, and plenty of what gets passed around about scores is either American, out of date or just wrong. Here is how the system works in Canada.

Two bureaus, one scale

Canada has two main consumer credit bureaus: Equifax and TransUnion. Lenders and other creditors report information about your accounts to one or both of them, and each bureau keeps its own file on you. Because not every lender reports to both, your two files can differ, and so can your scores.

Canadian credit scores generally run from 300 to 900. Higher is better. There isn’t a single official score: the bureaus and lenders use different scoring models, and a lender may use a version tailored to a particular kind of loan. That is why the score in your banking app might not match the one a lender sees, even on the same day. The general direction is what matters: if one score is rising, the others usually are too.

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There is no such thing as your credit score. There are several, and they all reward the same habits.

What moves the number

Scoring formulas are proprietary, but the bureaus and consumer agencies are open about the broad factors. In rough order of importance, they are:

Utilisation is the factor people can change fastest. Here is an illustrative example. If you have one card with a $5,000 limit and a $3,500 balance on your statement, your utilisation is 70 per cent. Paying that down to $1,000 before the statement date brings it to 20 per cent. Because many lenders report your balance around the statement date, paying earlier in the cycle, not just by the due date, can make a visible difference within a month or two.

Some things don’t affect your score at all: your income, your savings, your bank account balance and checking your own credit. When you look at your own report, that is a soft inquiry, which lenders don’t see as a sign of risk.

How to see your report for free

You are entitled to request your credit report from each bureau free of charge. Both Equifax and TransUnion offer a free way to get your report online or by mail, and many banks and credit card issuers now show you a free score in their apps. The bureaus also sell monitoring products; you don’t need to buy one to see your own file.

When you get your report, read it line by line. Check that every account is yours, that the balances and payment histories look right, and that your personal details are correct. Mistakes do happen, from a payment marked late that wasn’t to an account belonging to someone with a similar name.

How long things stay on your file

Negative information doesn’t stay forever, but it does stay a while. How long depends on the bureau, the type of information and, in some cases, your province. As a general guide, most negative items, such as accounts sent to collections, remain on your report for around six years, and sometimes longer.

Bankruptcies and consumer proposals have their own timelines. A first bankruptcy is typically removed some years after discharge, and a consumer proposal is typically removed a few years after it is completed, with an outer limit counted from when it was filed. The exact periods differ between the bureaus and can depend on your province, so if this applies to you, check with the bureaus directly or ask a licensed insolvency trustee.

The good news is that the impact of an old mistake fades over time, especially if everything since has been paid on time. Recent behaviour carries more weight than history.

Building a score from scratch

If you are new to credit, newly arrived in Canada or rebuilding, the path is the same: get one or two accounts that report to the bureaus, use them lightly and pay them in full and on time. A secured credit card, where you put down a deposit that becomes your limit, is a common starting point when an unsecured card isn’t available.

Put a small recurring bill on the card, set up an automatic payment for the full statement balance and leave it alone. After several months of on-time payments, you will usually have a score, and after a year or two, a reasonable history. It isn’t exciting, but it works.