Credit Scores for Canadians 101

A big concern for many people is that signing up for multiple credit cards will impact their credit score, which will result in them not being able to get a mortgage, loan or some other credit product.

What is a credit score?

Your credit score is an indication of your ability to take on additional credit products (e.g. loans). Generally a higher score = more attractive candidate for banks to approve you for products such as credit cards.

How is my credit score measured?

Your credit score is impacted by several factors, which generally fall into the categories below:

• Payment history: Measure of whether you pay your credit payments on time. Missing even a $1 on your credit card payment will result in a drop in your credit score.
• Utilization ratio: How much of your total credit limit you use. i.e. maybe you have a $20,000 total credit limit, but you only have around $1,000 to pay off every month. Generally you want to keep this to less than 35% of your total credit limit.
• Length of credit: How long your credit history goes back - the longer the period, the better. History is likely very short for new Canadians, which tends to result in a lower score.
• Types of credit: Score tends to be higher if you have a variety of credit products vs. only credit cards, as an example.
• Inquiries: Depending on the number and type of credit product you sign up for, the provider might make an inquiry on your credit score which will bring it down. This is one of the biggest reasons why most people avoid signing up for multiple credit cards, as they want to minimize the number of inquiries.

Who measures credit scores and where can I look up my score?

In Canada, there are two main providers of credit scores: Equifax (EQ) and TransUnion (TU). Both of them will score you from 300 to 900, though EQ scores are generally lower than TU scores.

If you go directly to their websites, it will generally try to make you pay to get access to your credit report. However, there are multiple free websites/apps that allow you to check your score for free:

EQ: Mogo

TU: CreditKarma

Where can I find my full credit report?

Unfortunately in order to get a full credit report, you would need to pay for this service from EQ/TU.

What are the types of credit score inquiries?

There are two types of credit score inquiries: hard inquiries and soft inquiries. Soft inquiries don't impact your score, while hard inquiries will decrease your score temporarily.

A tip for checking a list of all TU inquiries on your file for free is going to the Dispute Online page and initiating the dispute process. After answering all the questions required to verify you identity, you will be able to access all of the hard and soft credit inquiries on your report without having to file a dispute.

Will signing up for credit cards negatively impact my score?

Every time you sign up for a credit card, the bank will need to make a hard inquiry on your account which will temporarily decrease the score. In my experience, as long as you pay on time and don't use the full extent of your credit limit, your score will generally recover in 1-2 months.

From personal experience, I find that late payments (even if it's $1) will negatively impact your score much more and for a longer period of time compared to signing up for a new credit card.

If I have too many credit cards or sign up for too many credit cards, does this mean I won't be able to get a mortgage?

Only the mortgage provider can tell you whether you will get a mortgage or not. From personal experience, your down payment ratio and income are a much bigger factor in whether you can be approved for a mortgage rather than your credit score. That said, just because your score is in the mid-600s doesn't mean you won't qualify for a mortgage.