Factors That Affect Your Credit Score in Canada

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The 5 Factors That Déterminé Your Credit Score

Your credit score is a numeric rating that summarizes the health of your credit file in a single number between 300 and 900. In Canada, Equifax and TransUnion each calculate their own version of this score using proprietary algorithms. While the exact formulas are not disclosed, the factors influencing the score are well known and can be grouped into five main categories, each carrying a different weight in the final calculation.

1. Payment History (approximately 35%)

Payment history is the cornerstone of your credit score. It measures your consistency in making payments on time across all your accounts. Every payment 30 days or more late is recorded on your file at Equifax and TransUnion with a negative code. A single 30-day late payment can drop your score by 50 to 100 points, depending on your profile. Delays of 60, 90 days, or more have an even more severe impact. Accounts sent to collections (code R9) or court judgments are the most damaging entries for your score. In Quebec, negative information remains on file for 6 years.

2. Credit Utilization Rate (approximately 30%)

The credit utilization rate measures the percentage of your available credit that you are using. It is calculated by dividing your balance by your credit limit. This ratio is analyzed for each account individually and across all your revolving credit accounts. A ratio above 30% begins to negatively affect your score. A ratio above 75% is considered a high-risk signal by lenders. To optimize this factor, experts recommend keeping utilization below 30% overall and ideally below 10% to maximize the positive impact on the score.

3. Credit Age (approximately 15%)

Credit age considers the age of your oldest account, the average age of all your accounts, and the opening date of your most recent account. A long and well-managed credit history demonstrates financial stability. This is why experts generally advise against closing your oldest credit accounts, even if you no longer use them regularly. A credit card account open for 15 years with a perfect history is a valuable asset for your score.

4. Types of Credit (approximately 10%)

The diversity of your credit portfolio accounts for approximately 10% of your score. Credit agencies view favourably a mix of different credit types: revolving credit (credit cards, lines of credit), instalment credit (auto loan, personal loan), and secured credit (mortgage). This diversity demonstrates your ability to manage different financial products responsibly.

5. New Credit Applications (approximately 10%)

Each time you apply for credit, the lender performs a hard pull that is recorded on your file. A single inquiry has a minor impact (5 to 10 points), but multiple inquiries in a short time can signal to lenders that you are in financial difficulty or accumulating credit rapidly. However, there is an important exception: multiple inquiries for the same type of loan (mortgage or auto) made within a 14 to 45 day period are generally grouped and counted as a single inquiry by credit scoring algorithms.

Relevance for Mortgage Qualification

For AMF-certified mortgage brokers in Quebec, understanding these five factors is essential for advising clients effectively. A client with a score of 680 or above will qualify with A lenders at the most competitive rates. Between 600 and 679, access to A lenders is possible but conditions may be less favourable. Below 600, the client will generally be directed to B lenders or private lenders, with significantly higher rates. The broker can help their client develop a targeted improvement plan by identifying the most penalizing factor or factors in their credit file.

Frequently Asked Questions

What is the most important factor for my credit score?

Payment history is the most influential factor, accounting for approximately 35% of your score. Paying all your bills on time, even minimum payments, is the best way to protect and improve your score. A single payment 30 days or more late can significantly lower your score.

What credit utilization ratio should I aim for?

Experts recommend keeping your utilization below 30% of your credit limit on each account and overall. For example, if your card has a $10,000 limit, try to keep the balance under $3,000. A ratio below 10% is ideal for maximizing your score.

Does closing an old credit card affect my score?

Yes, closing an old card can negatively affect your score in two ways. First, it reduces the average age of your accounts (credit age). Second, it decreases your total available credit, which increases your utilization ratio if you carry balances on other cards.

Do credit inquiries significantly lower my score?

A single hard pull generally lowers the score by 5 to 10 points, and the impact diminishes after a few months. However, many inquiries in a short period can signal risk. Exception: multiple inquiries for the same type of loan (mortgage, auto) within a 14 to 45 day window are generally counted as one.

How long does it take to rebuild a score after a late payment?

A late payment stays on the file for 6 years in Quebec. However, its impact on the score diminishes over time. After 12 to 24 months of on-time payments, the score can recover significantly. The initial impact is most severe in the first months following the incident.

What credit score is needed for the best mortgage rates?

A lenders (banks, credit unions) generally offer their best rates to borrowers with a score of 680 and above. A score between 600 and 679 may still provide access to A lenders but with less favourable terms. Below 600, the borrower is generally directed to B lenders or private lenders, with higher rates.