What’s the score? Understanding your credit ratings and credit scores in Canada
Published November 15, 2022.
Estimated reading time: 3.5 minutes
- Many immigrants and refugees struggle to understand credit ratings and scores in Canada.
- There are two major credit reporting agencies – Equifax and TransUnion – both of which maintain Canadian consumer credit reports.
- A credit report is a summary of your credit history in Canada. A credit score is designed to represent your credit risk, or the likelihood you will pay your bills on time.
- Month by month, responsible credit habits such as paying credit card bills and making loan payments on time, will generally contribute to increasing or maintaining your credit scores.
For immigrants and refugees to Canada, few aspects of your new country’s financial system can feel more confusing than credit.
Many newcomers come to Canada and have trouble accessing loans from traditional financial institutions because they lack a Canadian credit history. This is information summarizing how you have handle debt owing on credit accounts, like credit cards, car loans, mortgages, lines of credit or other. Because financial institutions don’t know enough about your Canadian credit history, they may not necessarily take the risk of loaning you money.
Notably, a Windmill microloan of up to $15,000 can be used to help you pay for the costs of accreditation, training, professional development courses, certification and designation in Canada and no Canadian credit history is required. Find out if you’re eligible for an affordable loan by taking our two-minute online eligibility quiz here.
Credit bureaus in Canada
There are two nationwide credit reporting agencies – Equifax and TransUnion – both of which maintain Canadian consumer credit reports containing information reported to them by lenders, creditors and other sources such as the Office of the Superintendent of Bankruptcy. Your credit report may not be identical with each of the two agencies (Equifax versus TransUnion), as some lenders may report information to both of them, just one, or sometimes none at all.
The Windmill blog connected with Equifax Canada's Senior Compliance Officer, Consumer Advocacy, Julie Kuzmic, to help bring clarity to credit-related questions newcomers often have. Windmill works with Equifax Canada to help newcomer clients build their Canadian credit. Kuzmic says the more we talk about financial matters, the more we can eliminate confusion people have about such topics.
Equifax Canada’s Julie Kuzmic says credit building and credit scores in Canada can sometimes be misunderstood but learning about them can help you build your financial confidence in Canada.
“When I'm doing credit education seminars, I'm quite often surprised at how much misinformation is out there about how credit works in Canada—amongst newcomers and established Canadians alike,” says Kuzmic. “The more we talk about these concepts and money matters, the more likely people will have a better understanding of personal finances including credit.”
Looking for advice on how to develop an effective budget and financial plan in Canada? Explore the Financial Planning section within Windmill’s Skilled Immigrant Career Success Guide.
According to Kuzmic, here are some common questions and answers.
Question #1: What is my credit report?
A credit report is a summary of your credit history in Canada. Potential creditors and lenders may use credit reports as part of their decision-making process to choose whether to extend you credit — and at what interest rate. It's important to check your credit report regularly because creditors and lenders may use the information in it, such as your payment history and the number of active credit accounts, also known as “tradelines,” to evaluate your creditworthiness. Learn more about credit reports here.
Question #2: What is my credit score?
A credit score is a three-digit number, typically between 300 and 900, which is designed to represent the likelihood you will pay your bills on time. A credit score is calculated based on the information in your credit report. Credit scores may be based on some or all data from one or various credit reports.
Credit scores are calculated based on information in your credit report(s), reported to credit bureaus, like Equifax or TransUnion, by lenders, collection agencies and/or other sources. There are multiple credit scores and each credit score may have multiple versions used by lenders so the scores or version you see from a specific source isn’t necessarily the one that a particular lender is using. Many lenders use credit scores as one of the factors in deciding whether or not to approve certain requests, including credit applications.
As your credit report information is updated, it may result in changes to your score(s), depending on the credit scoring model used. Learn more about credit scores here.
WATCH: Equifax Canada's Julie Kuzmic reveals the truth behind three commonly-held myths about credit reports and credit scores in Canada.
Question #3: What affects my Canadian credit scores?
Different credit scoring models factor in the mix of different types of credit you have, such as credit cards or lines of credit, installment loans or mortgages. If you have too many different credit accounts – or don’t have a mix of different types – it may negatively impact one or more of your credit scores.
Creditors and lenders prefer to see a lower debt to credit ratio – that’s the amount of credit you’re using compared to the total amount available to you. If all your credit card balances reported to the credit bureau are near your credit limit(s), for example, this may negatively impact credit scores and may indicate to lenders or creditors that you may have too much debt, and therefore constitute a higher risk.
Question #4: What does it mean if I don’t have a credit score or a score of 0?
Sometimes there's not enough information on your credit report to provide a credit score. It may appear as a 0 or zero. This is not an indicator of bad credit history, but instead, it is likely you don't have enough credit information or payment history on your credit report to calculate an accurate credit score. All it takes is time and day-to-day transactions to establish enough credit history for a credit score to be calculated.
Question #5: How do I build credit in Canada?
Month by month, responsible credit habits like paying credit card bills and making loan payments on time, will generally translate into a positive credit history. Try to avoid making late payments or having accounts go to collections as this information can be sent to the credit bureaus, which may be included on your credit reports and in turn, have a negative effect on your credit report and/or scores.
If you are having trouble qualifying for credit in Canada, a secured credit card may be helpful, as long as the account information will be reported to a credit bureau. A secured credit card generally requires you to make a deposit, up front, possibly the same amount as your credit limit. You can use secured credit cards just like an unsecured credit card – to make purchases and make regular payments. If you fail to pay the balance of a secured credit card off each month, it will incur interest. And when you close the account, you receive your deposit back, minus any outstanding balance and fees.
Because a secured credit card is meant to help a consumer establish a credit history, it’s not generally meant for long-term use. Ask whether your credit card company reports to either of the nationwide credit bureaus (or to both). If they do not, the credit card account will likely not help establish a credit history.
For some people, it may make sense to think about applying for a secured loan. A secured loan is a loan backed by an asset that you own, such as a vehicle. A secured loan may carry lower interest rates and may offer larger loan amounts than an unsecured loan. But if you don’t make payments as agreed, you could lose the asset.
A Windmill microloan can also help you build your credit history in Canada as can the recently-launched Billi app, which uses daily transactions, rent and bill payments to help you in establishing your Canadian credit. Windmill reports client credit information to Equifax and Billi has established credit reporting relationships with Canada’s major credit bureaus.
Canadian consumers can access Equifax's free credit score and report through the Equifax Canada website.
Could an affordable loan help you pay for the costs of accreditation, training, certification or career development in Canada? Find out if you are eligible for a Windmill microloan of up to $15,000 by completing our two-minute loan eligibility quiz. No Canadian credit history required.
Find more information about credit and credit reporting in the resources below:
Equifax Credit Education Centre
Establishing your credit when you don’t have a credit history
What impacts your credit score?
What does it mean to see unscoreable on your credit report?