What is a bad credit score?

 

In Canada, credit scores start at 300 and go as high as 900. A bad credit score is a score of 574 or less and means banks, lenders, landlords, and even some employers will consider you less financially responsible than borrowers with a higher score.

While your score is calculated by two major reporting agencies, TransUnion and Equifax, and they use different scales and algorithms to identify your score, a low number means the same thing no matter who’s doing the counting: you’re a risky borrower.

 
 
 
 
300
575
650
750
900
Bad
Fair
Good
Excellent

How a bad credit score affects your finances

 

A bad credit score limits your ability to get and use the best financial products.

TransUnion and Equifax use proprietary algorithms to predict how likely you are to honour your payments on a loan or credit card. Your resulting credit score (and credit report) are like report cards that lenders use to see who you are as a borrower and to decide whether or not you qualify for their products. Unfortunately, with a bad credit score, it’s very unlikely that you’ll qualify for unsecured credit or low interest loans.

In other words, a bad credit score will make it difficult for you to pursue any of these financial goals.

Financial goalThe impact of your credit score
Getting a credit cardA bad credit score can prevent you from getting approved for certain credit cards — especially ones with competitive perks like rewards points, cash back, or low interest rates.
Qualifying for a loanWith a bad credit score, you will experience difficulty getting a loan application approved through a major bank and will likely only be offered a personal loan or car loan at high interest rates. You should apply for bad credit loans through other lenders to qualify for a better rate.
Renting a homeA bad credit score may hurt your chances of getting a rental application approved, especially if you’re trying to rent in a competitive housing market (like Toronto). Landlords may reject applicants with credit scores less than 650.
Buying a homeQualifying for a low mortgage rate will be very difficult if you have bad credit. Some lenders are unlikely to offer mortgages to applicants with bad credit, even at a high interest rate. You should work on improving your score before seeking a mortgage or try to find a guarantor or cosigner.
Landing a jobYou may not qualify for a role in the financial services industry or as a civil servant if you have bad credit. In Canada, you are usually required to pass a credit check for these positions.

Top credit card recommendations for Canadians with bad credit

 

A bad credit score limits your options when you’re shopping for a credit card. Cards with generous rewards or competitive perks will only be available to those with the best credit. So if your score is less than 575 or you have no Canadian credit history, your first priority should be improving your score so you can get a better card later. Use a secured credit card in the meantime to help fix your credit.

Home Trust Secured VISA
Fees and interest
Annual fee
$59
or $5/month
Purchase interest rate
14.90%
Cash advance rate
19.80%
Balance transfer rate
N/A

Use the Home Trust Secured Visa to start building up your credit history and improving your score. It comes with an annual fee of $59, but it’s a small price to pay for a full-featured Visa card that also offers a lower-than-standard interest rate of 14.9%. It’s perfect for Canadians who have had credit problems in the past or for anyone who’s new to the country and has no Canadian credit history.

Home Trust Secured No-Fee VISA
Fees and interest
Annual fee
$0
Purchase interest rate
19.99%
Cash advance rate
19.99%
Balance transfer rate
N/A

If your bad credit score is closer to the fair credit score range (575-650), you may qualify for this no-fee version of Home Trust’s secured Visa. While you will still need to put up a security deposit to use this card, you’ll save some money on the annual fee. And more importantly, if you use this card frequently and diligently pay off your balance every month, you can use the Home Trust Secured No-Fee Visa to rebuild your credit score for free.

How do I improve a bad credit score?

 

Having bad credit is nothing to be ashamed of, but improving your score is a goal you should work toward. Getting your score back on track doesn’t take a long time if you keep these financial habits in mind.

Use a secured or guaranteed credit card

Establishing a history of responsible credit usage is one of the best ways to raise and maintain your credit score. However, if you’re unable to qualify for a major credit card or don’t want to risk racking up more debt, a secured or guaranteed credit card is your best option. You can qualify for these cards without any prior credit history, but you will need to post a certain amount of money as collateral. While this amount is usually equal to the card’s limit, these are not prepaid cards. When you use a secured or guaranteed card, your activity will be reported to credit bureaus so you can build your score, just like with any other credit card,

Pay your bills on time

A history of on-time payments is one of the biggest factors TransUnion and Equifax evaluate when they calculate your score. If you have bad credit, you’ve probably had trouble paying your bills in full and on time in the past. To help improve your payment habits and ensure you’re always on time, set up automatic payments and use phone or calendar reminders.

Watch your credit utilization ratio

Your credit utilization ratio is how much debt you have relative to how high your total credit limit is and this ratio plays a big role in calculating your credit score. Keep your debts below 33% of your total limit as much as possible and try to avoid dramatically increasing this ratio within a short period of time. If you maintain a flexible amount of available credit, credit reporting agencies will consider you more of a low-risk borrower. But remember that certain types of debt, like government-backed loans, usually have a lesser impact on your score than do revolving products like credit cards.

Don’t cancel credit cards

If you have bad credit you may feel tempted to cut credit cards loose or close lines of credit as soon as you pay them off. But don’t. Your credit card accounts are tied to your credit history and your credit utilization ratio. Every time you cancel a credit card, your ratio goes up because your available credit goes down. The credit history associated with the cancelled card will also be removed from your credit report, which can shorten your credit history.

Haven’t checked your credit score yet?

 

Check your credit score for free right here. The process is fast, secure, and private. Best of all, checking your score won’t harm your credit in any way.