Having excellent credit is a major goal for many Canadians. That’s because the higher your credit score, the more likely you are to qualify for loans, such as lines of credit, mortgages, car loans, and student loans. And since lenders use credit scores to determine a client’s “credit worthiness”, a good (or excellent) score will also give you access to better interest rates when taking out loans. Sounds, great, right?
So, how do you know if you have an excellent credit score? That’s where we come in – we’ll tell you everything you need to know to understand how credit works and how to improve your score.
What is an excellent credit score?
According to Equifax, one of Canada’s major credit bureaus, a credit score of 800 and above is considered excellent. If you fall within that range, congratulations! Your credit score is well above the average score in Canada. If you fall below that range, don’t worry. There are things you can do to improve your score over time. We’ll give you some of those tips in a bit. But, first, some background on how credit scores in Canada work. Think of this next section as your cheat sheet for all things credit.
How credit scores in Canada work
There are two major credit bureaus in Canada, Equifax and TransUnion, and they’re responsible for assigning all eligible adult Canadians with a credit score.
Credit scores are made up of three digits and range from 300 to 900. The higher your score, the better your credit is considered. And having good credit in Canada is super important, since lenders use credit scores to determine who to lend to and what rates to offer them.
Here’s how Equifax breaks down its five different credit score categories:
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
How credit scores are calculated
The credit bureaus look at a number of factors when assigning you a credit score. These include; your payment history, the amount of credit you use vs. the amount of credit available to you (credit utilization), the types of credit accounts you have (car loans, mortgages, etc.), the length of credit history (how long you’ve been using credit for), the number of recent credit requests on your file (such as inquiries that are made when you apply for new credit).
The advantages of having an excellent credit score
If you’ve got an 800 credit score or above, ****there are some perks you’ll enjoy that others, with less stellar credit, aren’t able to. Generally, you’ll be offered better interest rates, have an easier time getting approved for loans, and will have access to more credit products. Here’s a breakdown on some of the advantages you can expect if your score falls within the 800 credit score of above range.
Access to lower rate: Lenders, such as banks and credit card companies, offer lower interest rates to borrowers with excellent credit scores. This means that you can qualify for loans, mortgages, and credit cards at cheaper rates, saving you a potentially huge amount of money over time. Think of your mortgage, for example. A rate of 4% on a $400,000 mortgage will cost you $2,599 per month vs. $3,541 per month. That’s a savings of $942 per month and $11,304. To put it another way, that’s a few extra trips every year or a large chunk of change that can be stashed away for retirement.
Easier loan approval: If you’ve got an excellent credit score, lenders will view you as a low-risk borrowers. And lenders love low-risk borrowers. Having an 800 credit score or above increases your chances of loan approval for larger purchases, such as a home or a car. It also provides you with more bargaining power, allowing you to negotiate better terms and conditions, since lenders will be more likely to want to work with you – that’s because they know you’re very likely to honour the terms of your loan.
Higher credit limits: An excellent credit score demonstrates your ability to manage credit responsibly. Lenders are more likely to extend higher credit limits to individuals with excellent credit, which can be particularly useful during emergencies or when you need to make significant purchases. Think of a home renovation you’d like to do. If you’d prefer not to dip into savings to improve your home, you could take out an affordable line of credit to get the work done. That’s only possible to borrowers with good to excellent credit.
Better rental opportunities: Landlords and property management companies will almost always perform credit checks on prospective tenants. With an excellent credit score, you’re more likely to pass these checks, making it easier for you to secure rental properties. It may also give you an edge over other applicants. After all, if you were a landlord, who would you be more likely to rent your unit to? Someone with poor credit or excellent credit?
Improved insurance rates: Some insurance providers consider credit scores when determining premiums for auto, home, or renters insurance. A higher credit score can result in lower insurance premiums, which can save you money over time.
Better job prospects: It may not seem fair, but certain employers, especially those in the financial sector or jobs that involve handling finances, may review your credit history as part of their hiring process. A credit score of 800 or above reflects positively on your financial responsibility and may increase your chances of being hired or considered for positions with higher financial responsibility.
Better negotiating power: When you have excellent credit, you have the advantage of being seen as a reliable borrower. This can give you better negotiating power in various financial transactions, such as negotiating lower interest rates, fees, or repayment terms on loans and credit cards.
Favourable utility services: Utility companies, such as electricity, gas, and cable providers, sometimes check credit scores before offering their services. A higher credit score may result in more favourable terms, such as waiving security deposits or providing access to special promotions and discounts.
Access to premium credit cards and rewards: Excellent credit scores make you eligible for premium credit cards with attractive benefits, such as cash back rewards, travel rewards, or exclusive perks. These cards often come with higher credit limits and better terms, allowing you to maximize your financial benefits. Credit card rewards are a great way to earn additional income or perks, and having excellent credit will make it more likely that you’ll qualify for these types of cards.
Overall financial health: A strong credit score is an indication of healthy financial habits and responsible money management. It opens up opportunities for financial growth, such as obtaining favourable loans or credit, which can contribute to your overall financial well-being and long-term stability.
If you’ve got an 800 credit score or above and you’re likely reading this and thinking “sweet! There are a lot of benefits to having an excellent credit score.” If your score falls below that, you can take comfort in knowing that your credit score can be improved. Regardless of your score, it's important to keep in mind that maintaining an excellent credit score requires consistent responsible credit behaviour, including paying bills on time, keeping credit utilization low, and avoiding excessive debt.
Even with an excellent credit score, if you fall behind on your payments, you’ll likely notice your score falling. And no one wants that.
How can I improve my credit score?
If your credit isn’t where you’d like it to be, there are a few things you can do to improve it.
The first, and perhaps most important, thing you should do is make sure your bills are all paid on time. Missing even one loan payment could ding your credit score. To make sure you’re covered each month, try setting up automatic bill payments or set reminders in your phone for when things like your cell phone, hydro, and credit card bills are due.
You can also limit new credit applications. Each time you apply for credit, like a credit card, the lender will pull your credit report to check your score. This results in a “hard” credit check which often drops your score.
You’ll also want to reduce your credit card balances. High credit utilization ratios are viewed as a risk and could negatively impact your score. So, if you’ve got a high balance on a credit card, for example, that’s nearing your credit limit, prioritize paying it down.
Check out KOHO’s Credit Building. It’s a secure way to build your credit for just $10 a month. There are no hard credit checks, no approval process, and – as long as you cover the monthly cost – you can build your credit history over time, which has been shown to improve credit scores.