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Why having a good credit score is important – and how you can improve yours

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Why is my credit score important? What goes into my credit score? How do I improve my credit score? 3 Tips The bottom line

Do you know your credit score? Many Canadians are still in the dark when it comes to the importance of monitoring their credit score. With Canada’s household debt at record levels, we think there’s a really important opportunity to educate Canadians about credit and help them better manage their finances.

In fact, a recent study conducted by Borrowell found a positive relationship between frequency of credit monitoring and credit score increase over time.

Here’s why having a good credit score is important:


Why is my credit score important?

Having a good credit score is important for many reasons – but mainly because of how much your credit score affects your overall financial well-being. Putting it simply, having a good credit score just makes life easier! It can help you:

  • Access better financial products, such as the best credit cards and low-interest personal loans.
  • Save money: a good credit score means lower insurance and mortgage rates.
  • Protect yourself against identity theft (Borrowell also offers your full credit reports so you can check your inquiries and make sure you know about all of them!).
  • Snag your dream rental. More and more, landlords want to know your credit score.


What goes into my credit score?

There are two different credit bureaus in Canada that calculate credit scores: Equifax and TransUnion. A credit score is calculated by weighing various factors on a person’s credit file. Borrowell provides the ERS 2.0 credit score – a popular and legitimate score calculated by Equifax – that’s used by many banks and lenders to evaluate creditworthiness.

Credit bureaus use the following factors in credit score calculation:

  • Payment history (35%) – Your payment history is how good you are at paying your bills on time. This is the most important factor that goes into your credit score.  
  • Credit utilization (30%) – Your credit utilization is how much available credit you’re using. To figure out your credit utilization ratio, add all the balances of your accounts. Then add the credit limits. Divide the total balance by the total credit limit and multiply by 100. Voila – you have your credit utilization ratio!
  • Age of credit history (15%) – The age of your oldest account matters because lenders like to see that you’re responsible. It’s beneficial to have a long history of paying your bills on time.
  • Credit inquiries (10%) – A credit inquiry is when a bank or lender makes an inquiry about your credit to determine your creditworthiness. This is called a hard inquiry which can slightly negatively affect your score. A soft inquiry, on the other hand, is when you check your score yourself using a tool like Borrowell. Soft inquiries don’t affect your credit score.
  • Total number of accounts (10%)  – Having too few or too many accounts open can affect your credit score. If you have a lot of accounts, it might be beneficial to consider closing ones you don’t use anymore.
  • Public records/derogatory marks – Bankruptcies and derogatory marks can have a serious impact on your credit score. Do your best to avoid them.

While some of these factors carry more weight than others, all of the above are important to a healthy and good credit score.


the average Canadian has about $22,837 of debt
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How do I improve my credit score? 3 Tips

  1. Credit utilization

Creditors look at the amount of credit you have available and the amount you have used. Keeping the balance on your card low looks good on your credit report and to anyone checking your credit.

Try to keep your credit utilization below 30%.  This means if you have a credit card with a limit of $3,000, then you should keep the balance below $1,000.

Bonus tip: raising your credit limit (while may seem counterintuitive) can help you keep utilization low since you’re increasing your available credit, creating a more favourable ratio.


  1. Pay your bills on time!

Paying your bills on time – every time –  is one of the best things you can do to improve your credit score. This shows any potential lender that you ’re financially responsible. Creditors have different grace periods, so it’s important to make sure you pay all bills by their due date.

Delinquent accounts can have a negative impact on your credit score. If you have any past due accounts, try to pay off the oldest ones first.

Bonus tip: add your household bill due dates to your calendar on your phone so you can’t miss them.


  1. Pay off your credit cards

According to Equifax, the average Canadian has about $22,837 of debt, with much of it being carried on credit cards at a whopping 19.9% interest rate! You can prevent your account from being charged this interest if you pay it off each month, which will save you money.

Unexpected events can happen, and you might not be able to pay your credit card bill in full each month. However, whenever possible you should try to pay it off as quickly as you can.

Bonus tip: products like low-interest balance credit cards and low-interest personal loans can save you money and help get you out of debt faster.


The bottom line

Your credit score should be thought of as a general indicator of your overall financial health. Knowing and understanding your score is a great way to take control of your finances so you can plan for the future.     

About Borrowell:

Borrowell helps Canadians make great decisions about credit. With its free credit score and report monitoring, personal loans, and product recommendations, Borrowell empowers Canadians to improve their financial well-being and be the hero of their credit! Join the over 500,000 Canadians who have checked their free credit score with Borrowell.

Updated on July 3rd, 2019


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