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 650 credit score good or bad?
If you’ve got a 650 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 650 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. 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.
City Average credit score Vancouver 705 Victoria 694 Calgary 667 Edmonton 649 Saskatchewan 659 Saskatoon 656 Winnipeg 661 Toronto 696 Ottawa 688 Montreal 687 Quebec City 683 Halifax 664 Fredericton 658
As you can see, a 650 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. Missing a loan payment, such as a credit card payment or other bills, can drastically decrease your credit score. 35% of your credit score is determined by your ability to make timely payments on your loans. It’s important to take a look at your credit history to see if you’ve missed any loan payments. Identifying this, and making sure you’re on time with all payments in the future, could help increase your credit score over time.
A high utilization ratio
This is a fancy way of saying you’re using close to the maximum of credit that’s available to you. Say you’ve got a credit card with a credit limit of $10,000. If you have a balance of $8,000 on that card, you’ve got a utilization ratio of 80% – and that’s super high. The best practice for helping to build your credit score is to keep your utilization ratio below 30%. So, in this example, you’d want to avoid having a balance higher than $3,000. Your utilization ratio is responsible for determining 30% of your credit score.
Age of credit
The age of your credit accounts is another important factor. That’s why it’s always important to take a look at your credit history before closing accounts. You’ll want a mix of new and old credit to signal that you’ve got a long history of managing credit. To put it another way, the longer you’ve been borrowing, the higher your credit score will be, since you’ve established a long credit history. The age of your credit accounts can account for up to 15% of your credit score.
Past negative credit events
If you’ve had past issues with credit, such as a bankruptcy, issues with collections, or other negative remarks on your credit history, your score will be negatively impacted. While it’s possible to rebuild credit after events such as these, having them on your credit record accounts for 10% of your credit score.
There are two types of credit inquiries: soft and hard inquiries. Any time your credit file is accessed, it’s recorded as an inquiry. A hard inquiry can cause your score to decrease; a soft inquiry will not have any effect. Hard inquiries are only done when you apply for a new line of credit. While applying for credit is important for building your credit, you’ll want to limit the amount of products you apply for to limit the amount of hard inquiries done on your credit file. Inquiries make up 10% of your credit score.
How to improve your credit score
Now that you’ve got a little more information on credit scores in Canada and how they work, let’s take a look at how you can improve your own score, even if it’s a 650 credit score or below.
Pay bills on time
Payment history has a significant impact on your credit score. Make sure to pay all your bills, including credit cards, loans, and utility bills, on time. Late or missed payments can negatively affect your score, so set up reminders or automatic payments to stay on track. Making a habit and checking in with your plan each month can go a long way to make sure you’re on top of all your bills.
Reduce credit card balances
High credit card balances relative to your credit limit can hurt your credit score. As we mentioned, you’ll want to aim to keep your credit utilization ratio below 30%. Paying down existing balances and avoiding maxing out your cards can help improve your score. This might take some budgeting, so take a look at your monthly expenses and try to find ways to put more of your money toward paying down your credit. This might hurt in the short term, but will go a long way in helping you rebuild your credit.
Establish a mix of credit
Having a healthy mix of credit types, such as credit cards, loans, and a mortgage, can positively impact your credit score. However, only take on credit that you can manage responsibly and avoid applying for multiple new accounts in a short period, as it can temporarily lower your score. It’s best to roll this plan out over time, only taking on credit products you need and know you can manage.
Maintain Long Credit History
Remember that building credit is a marathon, not a sprint. The length of your credit history matters. Keep older accounts open, even if they are not actively used, as they contribute to the average age of your accounts. Closing old accounts can shorten your credit history and potentially lower your score.
Regularly check your credit report
Get a free copy of your credit report from one of the major credit bureaus (Equifax or TransUnion) at least once a year. Review it for errors, such as incorrect account information or late payments, and report any discrepancies promptly to have them corrected. There are other services you can use to check your credit, such as KOHO’s Credit Building.
Limit new card applications
Each time you apply for new credit, a hard inquiry is recorded on your credit report, which can temporarily lower your score. Apply for credit only when necessary, and consider spacing out applications to minimize the impact on your score.
Build a positive payment history
If you have limited credit or a thin credit file, consider alternative options to build credit, such as applying for a secured credit card or becoming an authorized user on someone else's credit card. Make small purchases and consistently pay them off to establish a positive payment history.
Seek professional advice
If your financial situation is dire and if you're struggling with your credit or need personalized guidance, consider seeking help from a reputable credit counselling agency. They can provide valuable insights, budgeting assistance, and 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.