If you’re interested in getting a loan, such as a mortgage, car loan, or line of credit, it’s important to know what your credit score is. After all, it’s your credit score that lenders use to determine who to loan their money to – and what rates to offer them. Generally speaking, the higher your credit score, the more likely you’ll be to qualify for a good loan.
Is a 585 credit score good or bad?
If you’ve got a 585 credit score, you might be wondering if that’s a good score or a bad score. According to Equifax Canada, one of the country’s two major credit bureaus (organizations that issue credit scores), a 585 credit score falls within the “fair” range.
So, what does that mean? Let’s break it all down.
Credit scores in Canada
Your credit score is a three digit number that ranges from 300 to 900. As you can see, there’s a wide variance and your score is determined by a number of factors. The TLDR is that the higher your score, the more “credit-worthy” you’re determined to be by credit bureaus and, as a result, lenders. A high credit score unlocks a lot of financial opportunities, such as qualifying for cheaper loans, better chances of getting a job – since some employers, particularly those in the financial services sector, check candidates credit scores during background checks – and a higher likelihood of qualifying for a rental home.
Here’s how Equifax rates its credit scores:
Scores between 300 and 579 are considered poor
Scores between 580 and 669 are considered fair
Scores between 670 and 739 are considered good
Scores between 740 and 799 are considered very good
Scores between 800 and 900 are considered excellent
The average credit score in Canada, according to TransUnion, is 650. If you’ve got a credit score of 650, that means you fall just below the average credit score in Canada. A score of 585 is considered the lowest score someone can have and get a fair credit score rating. The good news is there are a lot of things you can do to improve your score. More on that in a bit.
First, though, let’s take a closer look at the average credit scores in some of Canada's major cities.
Quebec City 683
As you can see, a 585 credit score is below the average score in each of these cities. There are several reasons why your score may be fair instead of good, like many of these scores.
Factors that negatively impact your credit score
There are several factors that decrease your credit score over time. The credit bureaus collect information on each Canadian to help them determine credit scores, and some of the things an individual does can cause a score to decrease. This includes:
Late or missed payments
This is a big one. Failing to make a loan payment, be it for a credit card or any other financial obligation, can have a significant negative impact on your credit rating. A substantial 35% of your credit score hinges on your capacity to consistently meet your loan obligations. Therefore, it's crucial to scrutinize your credit history for any past instances of missed payments. By recognizing these lapses and committing to punctuality in all future payments, you can gradually boost your credit score.
A high utilization ratio
This is an elegant means of expressing that you're nearing the upper limit of the credit available to you. For instance, if you possess a credit card with a generous limit of $10,000 and you maintain a balance of $8,000 on it, your utilization ratio stands at 80%, which is considerably elevated. To enhance your credit score effectively, it's advisable to adhere to the practice of maintaining your utilization ratio below 30%. In the given scenario, this means keeping your balance below $3,000. It's worth noting that your utilization ratio holds responsibility for impacting 30% of your credit score.
Age of credit
The age of your credit accounts holds significant weight as a key factor. This underscores the importance of reviewing your credit history thoroughly before considering account closures. A well-balanced combination of both newer and well-established credit accounts serves as evidence that you possess a lengthy track record of responsible credit management. In simpler terms, the more extensive your borrowing history, the more positively it affects your credit score, as it signifies a solid credit history. The age of your credit accounts can influence up to 15% of your overall credit score.
Past negative credit events
Having experienced prior credit challenges, such as bankruptcy, collection problems, or other adverse notations on your credit report, will lead to a detrimental impact on your credit score. Although it is feasible to rehabilitate your credit following such events, these entries on your credit record contribute to a 10% reduction in your overall credit score.
Two categories of credit inquiries exist: soft and hard inquiries. Each instance of accessing your credit file is documented as an inquiry. A hard inquiry can result in a reduction in your credit score, while a soft inquiry has no impact. Hard inquiries occur exclusively when you seek to acquire a new line of credit. While applying for credit is pivotal for enhancing your credit standing, it's advisable to restrict the number of credit products you apply for to minimize the quantity of hard inquiries recorded on your credit file. Inquiries account for 10% of your overall credit score.
How to improve your 585 credit score
Now that you have a better understanding of credit scores in Canada and their functioning, let's explore how you can enhance your own score, even if it's currently at 585 or lower.
Timely Bill Payments: Your payment history wields substantial influence over your credit score. Ensure that you pay all your bills, including credit cards, loans, and utilities, promptly. Late or missed payments can have an adverse impact, so consider setting up reminders or automatic payments to maintain your financial track record. Consistently monitoring and adhering to your payment schedule each month is a prudent strategy to stay ahead of your financial obligations.
Reduce Credit Card Balances: Elevated credit card balances in relation to your credit limit can be detrimental to your credit score. As previously mentioned, it's advisable to target a credit utilization ratio below 30%. Dedicate efforts to pay down existing balances and refrain from maxing out your cards. While this may require some budget adjustments, redirecting more of your income towards reducing your credit balances will prove invaluable in your credit rebuilding journey.
Diversify Your Credit Portfolio: Cultivate a well-rounded mix of credit types, encompassing credit cards, loans, and a mortgage, to foster a positive impact on your credit score. However, exercise prudence when assuming new credit, ensuring that you can manage it responsibly. Avoid applying for multiple new credit accounts in quick succession, as it can lead to a temporary dip in your credit score. Instead, adopt a gradual approach, only acquiring credit products that are necessary and well within your capacity to manage.
Maintain a Long Credit History: It's important to recognize that establishing credit is a long-term endeavor. The duration of your credit history is a significant factor. Retain older accounts, even if they are not actively utilized, as they contribute to the average age of your accounts. Closing older accounts can shorten your credit history, potentially resulting in a lower credit score.
Regularly Monitor Your Credit Report: Obtain a complimentary copy of your credit report from one of the major credit bureaus, such as Equifax or TransUnion, at least once annually. Scrutinize it for inaccuracies, such as incorrect account details or late payment records, and promptly report any discrepancies for correction. Various services, such as KOHO's Credit Building, can be employed to monitor your credit.
Limit New Credit Card Applications: Keep in mind that each new credit application generates a hard inquiry on your credit report, which can temporarily decrease your credit score. Apply for credit only when necessary and consider spacing out applications to minimize their impact on your score.
Establish a Positive Payment History: For those with limited credit or a sparse credit file, consider alternative methods for building credit, such as applying for a secured credit card or becoming an authorized user on someone else's credit card. Make modest purchases and consistently pay off your balances to establish a positive payment history.
Seek Professional Guidance: If you find yourself in a challenging financial situation or are grappling with credit issues, and you need personalized assistance, it may be wise to seek guidance from a reputable credit counseling agency. They can offer valuable insights, assist with budgeting, and provide strategies to improve your credit score.
Build credit using a credit building tool: There are certain financial products that are designed to help you build credit over time. One of those is KOHO’s Credit Building. For as little as $7 a month, you can use this service to help establish positive credit history, which has been proven to increase scores over time, assuming on-time subscription payments. It’s a secure and easy way to build your credit history and requires no approval or hard credit checks.
KOHO offers three different ways to build your credit, so you’ve got options. All three options come with access to a Financial Coach and your credit score, on demand.