How your credit score affects the loans you apply for

This article has been updated from a previous version.

Do you know your credit score?

If so, have you ever stopped to think about what it means?

Credit scores can be mysterious, and you may find you know little about how they impact your life even after a crash course in how credit scores are calculated. Many people think they only have one score, but that’s not the case.

Two major credit reporting agencies calculate credit scores in Canada: TransUnion and Equifax. If you were to check your score with both companies, you’d get two different numbers, and while they could be very close to one another, there could also be a significant discrepancy. Many smaller companies claim to generate credit scores: however, lenders may not accept these reports.

Equifax and TransUnion also calculate specific scores on behalf of lending companies, such as car dealerships or banks. When you apply for a credit product, lenders will check your credit and generate a score designed to predict how much risk you pose as a borrower. Often, these calculations use the lender’s proprietary data to determine your risk level, which means ultimately, this score can differ from that of the credit bureaus.

Often, the borrower will not see the same number the banks and other lenders see when applying for credit products. Nevertheless, knowing your credit score can be a helpful way to assess whether you should take on debt or build your credit instead.

Is 650 a good credit score?

A good credit score generally falls within the 660 to 724 range. Borrowers with credit scores below 660 may be less likely to qualify for loans. At the same time, the loan terms available to this group may be less than ideal.

People with scores in the 660 to 724 range will generally be approved for new credit products, although they are less likely to qualify for the best offers.

Credit scores between 725 and 759 are considered very good. If the score is any higher, it is usually deemed excellent. People with excellent credit can generally access the lowest interest rates and best terms and conditions.

How your credit score affects getting a mortgage

Your credit score can impact your mortgage rate. For this reason, it should be a top consideration when shopping for a mortgage.

Generally speaking, a higher credit score will help you access a lower interest rate on your mortgage. Alternatively, you may not get approved for a mortgage from an A lender, such as a bank, if you have a poor credit score. In this case, your options might include co-signing for a mortgage or seeking a B lender or private lender.

How your credit score affects getting a car loan

Your credit score will also dictate the interest rate you qualify for when getting a car loan. Having a lower rate will help you save on the interest costs for the vehicle. In some cases, a good credit score can help secure special financing offers.

Getting a car loan with bad credit can make a huge difference to your finances. Higher interest rates can add up over the lifetime of your car loan. Suppose your credit score is poor and you can’t get approved for financing from the dealer or your bank. In this case, you would benefit from improving your score to a rate of 620 — or ideally, higher.

How your credit score affects getting a credit card

Many credit cards require a minimum income, so you may not be eligible for all cards even if you have an excellent credit score. However, most credit card providers require cardholders to have good or excellent credit to access top-tier cards. These cards feature higher earn rates for rewards, extended purchase protection and insurance, and other luxury perks (e.g., airport lounge access when travelling).

If you have bad credit, however, you can still qualify for a secured or guaranteed card. Often, these cards require a deposit and provide no perks, such as points or rewards. Once you improve your credit score, you may qualify for a low interest credit card. If you keep up with payments, this type of card can help build your credit and save money on the interest on your balance.

Keep track of your credit score

Experts recommend checking your credit score every six months (about twice a year). Doing so can help you catch errors on your credit report or track your progress to improve your score.

Some jobs — usually those where you will have access to money — will check your credit when you apply for the position. Some landlords will require that a tenant have good credit. And in Alberta and Quebec, auto insurance companies can look at credit scores when determining your auto insurance premium, though there are some rules they must follow with respect to consent and plan type.

Each lender will view your credit score differently. The best way to determine if you qualify for a product is to compare and shop around.