How your credit score works

How your credit score works

What’s measured, how to read it and what it will cost you.


credit_score_pieThe FICO score, the basis for most credit scores, consists of five major categories based on data in your credit report. The percentages in the chart reflect how important each of the categories is in determining how your FICO score is calculated. The biggest factors are how much debt you have, whether you’ve paid your bills on time and how long your credit history is. You may also be penalized if you don’t have a good mix of types of credit and if you’ve opened too many new accounts recently.

Reading your credit score


Your credit score rates creditworthiness out of a possible 900 points, and compares your credit standing to that of other Canadians. Lenders generally consider you a good credit risk if your score falls between 660 and 724. Anything below 560 is poor.

The real cost of a lower credit score

Homebuyers’ budgets will stretch much further if they have an optimal credit score. Consider these three different lending scenarios for a five-year fixed mortgage, based on the purchase of a $370,000 home with a 5% down payment. The lending rate increases as the credit score decreases, costing the buyer thousands of dollars more in interest and reducing the amount paid to principal. In this scenario, the homebuyer with the lower credit score ends up paying more than $6,000 extra in interest when compared to a buyer with good credit.