How credit scores work in Canada

The short answer

A credit score is a three-digit number that sums up how you have handled borrowed money. In Canada, it is based on the information in your credit report, which is kept by two credit bureaus: Equifax and TransUnion. Lenders use your score to decide whether to approve you for a credit card, loan or mortgage, and on what terms. A stronger score usually means more options. The good news is that the score follows your habits, so it can improve over time.

What is in your credit report

Your credit report lists your personal details, like your name, addresses and employers. It also lists your credit cards, loans, lines of credit and store cards, plus how you have paid them. Missed payments, accounts sent to collections and bankruptcies can appear too. The report shows which lenders have checked your credit in the last three years. According to the Financial Consumer Agency of Canada (FCAC), the bureaus update this information at least once a month.

What affects your credit score

The FCAC calls payment history the most important part of your score. Paying every bill on time, or at least the minimum when you cannot pay in full, matters more than anything else. The next big factor is how much of your available credit you use. Being close to or over your limit can hurt, even if you pay on time. The FCAC suggests keeping your balance below 30% of your total limit.

Other things count too. A longer credit history helps, so how long your accounts have been open matters. The mix of credit you use, such as a card and a loan, plays a part. Applying for new credit often can lower your score, because many applications in a short time can look like money trouble. Debts in collections and bankruptcy filings have a strong negative effect and stay on your report for years.

Soft checks and hard checks

There are two kinds of credit checks. A hard check, or hard inquiry, happens when a lender looks at your credit because you applied for something, like a card or a car loan. It shows up on your report, other lenders can see it, and it can affect your score. A soft check, or soft inquiry, happens when you check your own credit, or when a company you already deal with reviews your file.

The FCAC is clear that checking your own credit report or score does not affect your score. Soft inquiries only appear on the version of the report that you can see. That means you can look as often as you like. Checking regularly is actually a good habit, because it helps you spot mistakes or signs of fraud early.

Equifax and TransUnion can differ

Equifax and TransUnion are separate companies, and not every lender reports to both. So your two reports can hold slightly different information, and your scores can differ too. Neither one is wrong. Both bureaus let you view your credit report online for free, and some banks and apps also show a free score. If you see an account you do not recognise or a payment marked late by mistake, you can ask the bureau to correct it.

Habits that build a strong score

Building good credit is mostly about steady, boring habits. Set up automatic payments for at least the minimum so you never miss a due date. Keep your card balances low compared to your limits. Apply for new credit only when you need it, not every time a store offers a card. Keep older accounts open if they cost you nothing, since they add to your history. And check your report about once a year for errors.

Questions

Does checking my credit score lower it in Canada?

No. Checking your own credit report or score is a soft inquiry, and the FCAC confirms it does not affect your score. Only hard inquiries, which happen when you apply for credit, can have an effect.

What is the most important factor in my credit score?

Payment history. Paying on time, or at least paying the minimum, matters most. How much of your credit limit you use is another big factor.

Why are my Equifax and TransUnion scores different?

Not every lender reports to both bureaus, so each one may hold slightly different information about you. Different information can lead to different scores. Check both reports for errors.