What is a Credit Score?

Remember report cards? Now imagine a report card that shows how well you handle your money. That is what a credit score is.

A credit score is a numerical representation of your creditworthiness, based on your credit history. It ranges from 300 to 900 in Canada, with higher scores indicating better creditworthiness.

If you borrow money (like a loan or credit card) and pay it back on time, your score goes up. But if you miss payments or owe too much money, your score goes down.

Most Common Myths

There is a lot of misinformation floating about what a credit score is about. Understanding how credit scores really work helps you make better financial decisions. Let’s clear up some of the most common misconceptions.

• Myth 1: Checking your credit score will lower it.
• Fact: Checking your own credit report doesn’t affect your score. Only “hard inquiries” may cause a temporary dip. This will be discussed in section 2, “understanding your credit report”.
• Myth 2: Closing old credit cards improves your score.
• Fact: Closing accounts can actually hurt your score by reducing your available credit and shortening your credit history. Keeping older accounts open—even with minimal use—helps maintain a stronger credit profile.
• Myth 3: Paying off debt immediately improves your score.
• Fact: While reducing debt is smart, the impact on your score depends on other factors like payment history and credit utilization. Regular, on-time payments and maintaining low balances over time have a more powerful, lasting effect.

Credit Score Ranges in Canada

• Excellent (800-900): Access to the best rates and terms.
• Good (720-799): Eligible for most loans and credit products.
• Fair (650-719): May be subject to higher interest rates.
• Poor (600-649): Limited credit options and higher rates.
• Very Poor (300-599): May be denied credit or offered unfavorable terms.

Who Assigns These Scores?

These scores are assigned through credit bureaus. Currently in Canada, Equifax and TransUnion are the two main credit bureaus.