A good credit score is essential for every Canadian’s financial freedom and stability. Credit scores represent how responsible you are with your money and how much buying power you have. They can affect your finances from how likely you are to get approved for a loan to simple purchases you may need to make in your daily life. For example, if you need to purchase a couch and have a poor credit score, you won’t be allowed to purchase it with installments, and you’ll be required to pay it in full.
So, let’s dive into what average credit scores are in Canada by age, and how you can achieve the highest credit scores.
What are credit scores?
A credit score is a three-digit representation of someone’s creditworthiness. Institutions use credit scores to measure people’s financial trustworthiness. It shows a person’s history of borrowing and repaying debts, as well as their ability to manage credit responsibly. A high credit score indicates a low risk for lenders (such as banks), enabling individuals to access better loan terms, lower interest rates, and broader financial opportunities.
Lenders are interested in your credit report to find out if your credit history is good enough to indicate that you’ll be able to repay your loans or mortgages. Your credit score is essentially a proof of how well you pay your bills.
Credit scores can have an effect on virtually all aspects of our lives. Your credit score can be monitored during loan applications and will affect your approval. It will help your loaner in identifying if you are a low risk or a high risk borrower. The higher your credit score, the more likely you are to pay your loans on time.
How are credit scores calculated?
Credit scores are calculated by major Canadian credit bureaus such as Equifax and TransUnion, using a formula known as the FICO scoring model or the newer VantageScore model.
These formulas take into account various factors such as payment history (does the person have any late or missed payments?), credit utilization (how much of their available credit are they using?), length of credit history, types of credit, and recent credit inquiries. Each factor has an assigned weight, and the credit bureaus analyze this data to determine the individual’s credit score. (The specific algorithms used by the credit bureaus are not publicly disclosed.)
What Is Considered a Good Credit Score in Canada?
According to Equifax, a good credit score is between 660 to 724. Here is a breakdown of what different ranges of credit scores mean:
Under 579: Poor
579-669: Fair
670-739: Good
740-799: Very Good
Over 800: Excellent
Does age typically influence credit scores?
Interestingly, age correlations do exist between credit scores. Data provided by Borrowell and Equifax shows that average credit ratings improve with age.
The average adult’s credit ratings are higher than younger adults. Time plays an important role in credit health. Good credit increases with each new credit product added to your account. While this may not always be the reality, often time and more credit products work in your favour at increasing your credit score.
What Is the Average Canadian Credit Score By Age?
Equifax interviewed people in a diverse age group and measured credit scores for 10 years. Here is the average credit score by age (note that these scores are approximations).
Average Canadian credit scores by age:
Age 18-25: 692
Age 26-35: 700
Age 36-45: 712
Age 46-55: 720
Age 56-65: 738
Age 65+: 750
Frequently Asked Questions:
How much of my score is based on Payment History?
Understanding the significance of payment history is crucial in managing your credit score effectively. Timely payments typically contribute positively to your credit score, reflecting responsible financial behaviour. Conversely, late or missed payments can have adverse effects on your score.
It’s important to note that payment history accounts for a substantial portion of your overall credit score, approximately 35%. This underscores the pivotal role that consistent, on-time payments play in maintaining a healthy credit profile.
How can you improve your credit score?
As long as you have a credit score of less than 800, this question should be at the back of your mind. There is never any harm in aiming for a better score, and there are multiple ways you can improve your credit score.
Here are a few simple actions you can take to improve your credit score:
Pay Your Bills on Time
Almost every bank will report late payments to the credit bureau. This will instantly affect your credit score negatively. Hence, making payments in full and on time is a great way to maintain and improve your credit score. As we mentioned earlier, your payment history will determine 35% of your financial score. You should pay everything within the time you have due. Payment delays and missed payments could seriously affect your credit rating and be an enormous red flag for lenders.
Don’t Make Excessive Credit Inquiries
When a credit application is submitted, it appears in the credit history. Excessive credit inquiries can signal the presence of credit-seeking behaviour, which serves mainly in alerting potential lenders to potential problems. Only apply for more credit when required, and if you have good reason to think your request will be approved.
Keep Your Credit Utilization Below 30%
Credit utilization is the rate of how much credit you actually use versus how much credit you have available. For example, if your credit card limit is a $1000, then you should use at most $299 in order to keep your utilization rate below 30%.
Credit card companies view a credit utilization rate exceeding 30% as high credit utilization, which could negatively affect your credit score. High credit utilization suggests potential financial strain and difficulty in managing debt, increasing the risk of missed payments or default. Hence, they can lead to a lower credit score.
Conclusion
In conclusion, understanding the average credit scores in Canada across different age groups provides valuable insights into the overall credit health of individuals. While credit scores may vary among age demographics, it is essential to focus on maintaining and improving creditworthiness regardless of age. By practicing responsible financial habits, such as making timely payments, managing credit utilization, and maintaining a diverse credit mix, Canadians can work towards achieving higher credit scores and unlocking greater financial opportunities in the long run. Remember, your credit score is not fixed and can be positively influenced with consistent effort and smart financial choices!
