FICO Credit Score in Canada – What Is It, and Does It Matter?

Posted on July 11, 2022 by Dan Kent

Throughout our lives, at one point, we've likely obsessed over our credit score. Whether we're applying for a credit card, renting a home, applying for a mortgage, or financing a new vehicle. We look for that ever-so-important 3-digit score to let us know whether we'll qualify or need to do some work to get there.

That 3-digit score? That is what is called your FICO score. In this article, we'll go over a FICO score, what is considered a good score, an average score, even a poor score, and so much more.

First things first, let's dive a little deeper into FICO.

What exactly is a FICO score?

A FICO score is nothing more than a number created by the Fair Isaac Corporation. The number is a reflection of your credit report. It will allow institutions to get an idea about a borrower's previous payment history, the current level of debt, types of credit used, length of credit history, and much more.

This allows an institution to judge your overall credit risk to determine whether or not they should loan you the money you are seeking.

Although consumers like to keep tabs on their FICO score, its primary use is a quick overview of how risky lending money to a borrower will be.

The FICO score used to be called "the Beacon score," and the score is used by over 90% of Canadian lenders.

FICO score ranges

Realistically, you've probably come to this article to learn about your FICO score. And in that case, you're likely looking to see what is good, average, and bad. Let's go into a bit of detail on the credit score ranges you can get when the bank pulls a hard credit check on you.

First, FICO works on a scale of 300 to 850, with 300 being the worst and 850 being the best.

If your FICO score is above 800: You're well above average and will likely have little trouble securing credit.

If your score is from 740-799: You're above average, and a score this high is nothing to be upset about. Anyone in this range is showing a strong credit history to lenders.

If your score is from 670-739: You're average here. Most lenders would view this as a good credit score but not a great one.

If your score is from 580-669: It's starting to get a little dicey. Although lenders will likely still approve you at this point, you may not qualify for the best interest rates depending on the circumstances. This is a below-average score.

If your score is under 580: This is a poor credit score, and you will likely have difficulty securing credit with optimal interest rates. Banks may want you to utilize a secured credit card, offer higher interest rates on their loans, or even outright reject you. 

What is the average FICO score in Canada and the United States?

According to TransUnion, the average credit score in Canada is around 650, while in the United States, it is a little higher, coming in at 698 according to VantageScore. Both of these numbers are based on 2021 data.

What impacts my FICO score?

Many believe that paying their bills on time will result in a rock-solid credit score. However, this isn't the case. The scoring scale is based on many factors, all of which impact your overall score differently. Let's go into some detail about what they are.

Your payment history

This one has the most significant weighting. This payment history section will show payments, including late and missed ones, along with bankruptcy or collections situations.

This makes up 35% of your credit score

Money currently owed

This means the amount of debt you currently have. However, this isn't just an outright score based on the dollars of debt you own. A person making $60,000 per year with $60,000 in debt is in a much different situation than someone who makes $250,000 per year with $60,000 in debt.

To even the playing field, they use a ratio system that determines how much debt you are in compared to the total available. For example, someone who owes $2,000 and has accounts that could allow them to borrow $10,000 will score higher in this area than someone who owes $9,000 and can borrow up to $10,000.

This makes up 30% of your credit score

Credit history

This one is pretty simple; the longer your credit history, the higher your score in this area. Someone who had a credit card 15 years ago and hasn't taken out more credit in the last half-decade will score higher than someone who just signed up for a credit card 2 years ago and opened up a line of credit last month.

This makes up 15% of your credit score

Variety of credit

To achieve the highest possible score in this category, they will look to those with a wide variety of credit products. For example, someone who owns one credit card, paid for their car outright and currently rents a home will score lower than someone with a mortgage, a car loan, a credit card, and a home equity line of credit.

Remember that you shouldn't go out and get more debt just to get more debt. The person who owns nothing more than a credit card could still easily be in a position of stronger credit due to the above factors, which have much more weight.

This makes up 10% of your credit score

New accounts

If you've opened up many accounts in the last while, you'll likely take a hit in this area. If you haven't, you'll probably score perfectly. The reason this category exists is to alert lenders of people who may be looking to grab all of the available credit they can. This is a sign of desperation.

This makes up 10% of your credit score

Where can you check your FICO score in Canada?

You won't like the answer to this, but the reality is that you can only check your credit through a financial institution in particular circumstances which we'll review in a bit.

Many Canadians believe they can go to companies like Equifax, TransUnion, or other credit bureaus and get their FICO score. However, this is not your official FICO score and is viewed as a "soft credit check."

Soft credit checks vs hard credit checks

A soft credit check is through a company like Equifax or TransUnion and will give you a consensus on your current credit score. These credit monitoring services go on your official credit report as an inquiry, but no matter how often you check them, they do not impact your credit score.

"Hard credit checks," on the other hand, are when you go to a financial institution and look to apply for a loan. A hard credit check is run when you've already made the application for a loan. So in this situation, executing too many hard credit checks will impact your credit score as it can be seen as an attempt to get credit due to financial pressure. 

This is why your official FICO score is, for the most part, only available at financial institutions. When they pull a hard credit check, that is your official score.

Keep in mind that there are some exceptions to hard checks impacting credit. For example, searching for the best car loan or mortgage rates will result in multiple hard checks. But it shouldn't affect your score if they're done within a short period.

Do I need to monitor my FICO score in Canada?

Realistically, it is hard to justify paying for some of these services for constant credit monitoring. Some of them initially give you a free copy of your credit report but typically charge an annual subscription. Although some companies like TransUnion will provide you with a credit report highlighting your current financial situation, these can often be monitored for free.

If you've never gotten in trouble with debt, missed payments, gone bankrupt, been sent to collections, or any other poor financial situation, I don't see much point in monitoring your credit score. Keeping tabs on your score if you're looking to rebuild your credit is a wise move, but after it's repaired, if you keep paying off your bills and don't overutilize your debt, your score won't just go down out of the blue.

I do not pay to monitor my credit score because I know it's good. I pay my bills on time, stay well within my credit limit, and don't go around chasing credit cards by applying for a whole bunch of them.

As long as I get a loan, does my FICO score matter?

To be blunt, yes, it does. Just because you can get approved for a loan with a score of 600 doesn't mean you're in the same position as someone who scores 800.

Things like personal loans or auto loans often have interest rates that are dependent on the current customer. For example, if you've ever watched an automobile commercial where they advertise 0% interest on their cars, you'll often see that it comes with the caveat "OAC" or On Approved Credit.

Someone with an excellent credit score may qualify for that 0% financing. But someone with a poor score may have to pay interest. In the end, a good FICO score can save you a ton of money by gaining access to lower interest rates. As your score becomes lower, the banks will naturally want a higher interest rate to compensate for the risk management.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post.

Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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