Your credit score is a number that summarizes how reliably you have repaid debt. In Canada it is calculated from the information in your credit report, which is kept by Equifax and TransUnion. Lenders use the score, along with your income and existing debt, to decide whether to approve a loan and what rate to charge. A higher score generally means a lower rate and a better chance of approval, because the lender sees less risk.
What Goes Into a Score
The exact formula is proprietary, but the broad factors are well known.
- Payment history. Whether you pay on time, and whether you have missed payments or defaulted.
- Credit utilization. How much of your available revolving credit you are using.
- Length of history. How long your accounts have been open.
- Credit mix. A blend of revolving and instalment accounts.
- New inquiries. How often you apply for new credit.
Payment history and utilization carry the most weight. That is why paying down a nearly maxed credit card often helps more than opening a new account.
What Lenders See When You Apply
When you apply for a loan, the lender usually pulls your report and score. A full application typically triggers a hard inquiry, which can shave a few points off your score for a short time. Pre-qualification or a rate check usually uses a soft inquiry, which does not affect your score. If you plan to shop around, do it in a short window so the inquiries are grouped and treated as one shopping event rather than many separate applications.
| Inquiry type | Effect on your score | When it happens |
|---|---|---|
| Soft inquiry | None | Pre-qualification, your own checks |
| Hard inquiry | Small, short-term dip | A full loan or card application |
How a Score Maps to Loan Terms
Lenders set their own cut-offs, and no single number guarantees approval or a specific rate. Broadly, a strong score opens the widest range of offers and the lowest rates. A weaker score narrows the field, and the loans that remain tend to cost more. Some lenders specialize in borrowers with damaged credit and price for that risk. You can be approved with a low score, but expect a higher rate and a smaller amount.
Habits That Help
- Pay every bill on time, even the minimum, because a single missed payment can linger.
- Keep credit card balances well below the limit.
- Avoid opening several new accounts in a short period.
- Keep old accounts open to preserve your history length.
- Check your report at least once a year for errors and dispute anything wrong.
Mistakes That Hurt
Missing payments, maxing out cards, and letting accounts go to collections are the fastest ways to damage a score. Closing your oldest card can shorten your history and raise your utilization. Applying for credit you do not need creates inquiries for no benefit. Co-signing a loan for someone else puts that debt on your file too, and their missed payments become your problem.
Before You Apply
Pull your own report first, fix any errors, and pay down what you can. Decide how much you need and how much you can repay each month. Then compare offers from several licensed lenders using pre-qualification where possible, so you can see your options without repeated hard inquiries.
How to Read Your Own Report
Your report lists your accounts, their balances, your payment history, and any collections, judgments, or insolvency records. Check that every account is yours, that the balances are current, and that closed accounts show as closed. Errors are common, and correcting them can raise your score. Each bureau has a dispute process, and you can request your report directly. Review it at least once a year, and always before a major application, so you are not surprised by something a lender sees. If you find an error, dispute it in writing and keep a copy of the correspondence until it is resolved.
Sources and further reading
- Financial Consumer Agency of Canada, for guidance on credit reports, scores, and borrowing.
- Office of the Superintendent of Financial Institutions, which supervises federally regulated banks.
This is general information, not financial advice. Instalment.ca is a loan matching and comparison service, not a lender and not a financial advisor. All loan terms, rates, and fees are set by individual licensed lenders and are subject to credit approval.