The importance of your credit rating

February 13, 2013

Credit Rating and Credit ScoreConsumers are becoming quite reliant on credit to live their daily lives, and some are accumulating debt well over their budgets. According to recent data from the Credit Counselling Society, Canadian consumers have increased their debt by 53%. With these large changes in consumer debt level, it is important to understand your credit rating and how your credit score is determined.

Credit Rating / Credit Score

Each time you use credit, you’re borrowing money with the promise of paying back within a certain period of time. A credit rating (also known as credit score) is a statistical method that is used to determine the probability of the borrower paying back the money owed.

The main factors that are used to calculate your credit score are:

  • Credit payment history
  • Current debts
  • Length of credit history
  • Type of credit
  • How often new credit applications are submitted

Your credit rating is typically only one criterion that your lender will use when making decisions. If you’re seeking a Canadian mortgage for example, the lender will take into account other factors including the property being purchased and the homeowner’s equity.

The Equifax Credit Score™

Credit scores range from 300-900. Higher scores are considered more favourable.

Range 300 to 559 560 to 659 660 to 724 725 to 759 760+
Score Rating Poor Fair Good Very Good Excellent
Cdn. Population 4% 10% 15% 14% 57%

Why is your credit rating important?

When applying for a credit card, mortgage or even a mobile phone monthly plan, your credit rating is checked by the provider/lender. If you have a favourable credit rating, you should get access to lower interest rates. If you have a poor credit rating, you are still able to obtain credit, but at a higher interest rate.

Tips to improve or maintain a good credit score

  • Pay your bills on time and for the correct amount (at least the minimum monthly payment).
  • Avoid obtaining unnecessary credit such as unsolicited credit cards that arrive in the mail, as tempting as they are.
  • If you have issues repaying your debt, contact your creditor to make arrangements. Do not ignore any past due bills.
  • Keep your debt as low as you can. Extending your credit close to your limit can be viewed poorly.
  • Limit the number of credit applications.


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