Your credit score is made up of three numbers, serving as an indicator of your financial history, wellness and responsibility. These three little numbers can spell the difference between approval and rejection for a mortgage, a job, a rental unit and so much more. 

We have outlined how your credit score is calculated, why it matters and steps you can take to improve your score. 

How is my credit score calculated? 

There are two major credit bureaus in Canada: TransUnion and Equifax. Each one collects and shares information about your credit usage with potential lenders and financial institutions. Most lenders use this information as one component when calculating your credit worthiness.  

While there are several slight differences between the TransUnion and Equifax scores, both scoring models look at the following factors when calculating your score: 

• Your payment history 

• Your used credit vs. your available credit 

• The length of your credit history 

• Credit mix 

• Number of inquiries into your credit file 

How does my credit score affect my life?  

Your credit score serves as a gauge for your financial wellness to anybody who is looking to get a better idea of how responsible you are with your financial commitments. 

Here are just some ways your credit score can affect your day-to-day life: 

• Loan eligibility. This is easily the most common use for your credit score. Lenders check your score to determine whether you will be eligible for a loan. 

• The larger the loan, the stricter the requirements. A poor credit score can hold you back from buying a house, a car, or getting a personal. 

• Interest rates on loans. Here too, your credit score plays a large role in your financial reality. A higher score can get you a lower interest rate on your loan, and a poor score can mean paying thousands of extra dollars in interest over the life of the loan. 

• Employment. Employers may look at the credit reports of potential employees as part of the hiring process. 

• Renting. Many landlords run credit checks on new tenants before signing a lease agreement. A poor credit score can prevent you from landing that dream apartment, or it can prompt your landlord to demand you make a higher deposit before moving in. 

• Insurance coverage. Most insurers will check your credit before agreeing to provide you with coverage. A lower score may mean paying hundreds of dollars more for coverage each year. 

How to improve your credit score 

If you’re planning on taking out a large loan in the near future, applying for a new job, renting a new unit or you just want to improve your score, follow these steps: 

• Pay your bills on time. If you have the income to cover it but find getting things paid on time to be a challenge, consider using automatic payments. 

• Pay more than the minimum payment on your credit cards. Your credit score takes the trajectory of your debt into account. By paying more than just the minimum payment on your credit cards, you can show you’re working on paying down your debt and help improve your score. 

• Pay your credit card bills before they’re due. If you can, it’s best to pay your credit card bills early. This way, more of your money will go toward paying down your outstanding balance instead of interest. 

• Consider debt consolidation. If you’re paying interest on multiple outstanding debts each month, you may benefit from paying off your debt through a new credit card that offers an introductory interest-free period, or from taking out a personal loan at Turtleford Credit Union. This way, you’ll only have one low-interest or interest-free payment to make each month. (Note: If you’ll be applying for a large loan within the next few months, it’s better not to open any new cards.) 

It’s crucial that you make the effort to improve and maintain your credit score. It’s more than just a number; it will impact your financial wellness for years to come. 

This content is intended for general information and discussion purposes only. It does not constitute financial, legal, or professional advice. Readers should seek independent guidance from a qualified professional to ensure decisions are appropriate to their personal situation when applicable.