What Does Your Credit Score Really Mean?

Some people are obsessed with their credit score, especially when trying to get out of debt.  Your credit score is important if you plan on borrowing – to get a car loan or to buy a home, for example.

I’ve sent away for my free credit report a couple of times to check for errors, but this report doesn’t include your credit score.

Curiosity got the best of me, so last week I went on the Equifax website and paid $23.95 to access my credit report and credit score.

Credit Score: What Does It Mean?

Your credit score indicates the risk you represent for lenders, compared with other consumers.  The two credit-reporting agencies, Equifax and TransUnion, use a scale from 300 to 900.  Higher scores are viewed more favorably.

My credit score is 788, which isn’t perfect, but most lenders would consider this an excellent score.  It’s important to keep a track of your credit score and if you don’t have any idea as to where you stand as far as credit worthiness is concerned, you can look up websites such as Credit Sesame to help you find out that info.

Based on my credit score though, I should be able to qualify for some of the lowest interest rates available and a wide variety of competitive credit offers should also be available.

Credit Score 300 – 559 560 – 659 660 – 724 725 – 759 760+
Quality Poor Fair Good Very good Excellent
Canada population 4% 10% 15% 14% 57%

What’s Impacting Your Credit Score?

A complex formula takes into account many factors described in your credit report, such as:

  • payment history – carrying a balance on your credit card, or missing a payment
  • any collection or bankruptcy recorded against you
  • outstanding debts – the limit on your credit card (is your balance close to your limit?)
  • account history – how long have you had credit?
  • number of recent inquiries made about your credit report
  • type of credit you are using – a mix of credit cards and loans

These factors don’t all impact your credit score in the same way.  The most important factors are your payment history, whether you have ever declared bankruptcy, and the amount of your outstanding credit balances.

Credit Score








Most lenders would consider anyone with excellent credit to be a very low risk.  If you’re in the market for credit, this is what you might expect:

  • You may be able to obtain high credit limits on your credit card.
  • Many lenders may offer you their most attractive interest rates and offers.
  • Many lenders may offer you special incentives and rewards that are geared to their most valuable customers.

It’s important to understand that your credit score is not the only factor that lenders evaluate when making credit decisions.

Different lenders set their own policies and tolerance for risk, and may consider other elements, such as your income, when analyzing your credit-worthiness for a particular loan.

Improving Your Credit Score

Here are some tips on how to raise your credit score:

  • Pay your bills on time.  Although the payment of utility bills – phone, cable and electricity – is not recorded in your credit report, some cell phone companies may report late payments to the credit-reporting agencies, which could affect your score.
  • Pay your bills in full by the due date.  If you aren’t able to do this, make sure to pay the required minimum amount shown on your monthly credit card statement.
  • Pay off your debts as quickly as possible.
  • Don’t go over the credit limit on your credit card, and try to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score.
  • Reduce the number of credit applications you make.  If too many lenders ask about your credit in a short period of time, it can have a negative effect on your score.
  • Keep a credit history.  You may have a low score because you don’t have a record of borrowing money and paying it back.

Your credit score only matters if you plan on borrowing, so if you have borrowed responsibly in the past you shouldn’t have any trouble acquiring credit.  Have you checked your credit score lately?  Do you care?

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  1. John on April 2, 2012 at 10:37 am

    You know, I haven’t checked my credit score – ever. In fact, I haven’t had any debt for the past 3 years: no mortgage, credit cards, etc. So I’d imagine my credit score would be a big fat ZERO! But that’s okay with me. It’s forcing me to save up money for things I want to buy: cars, homes, etc. Fun stuff!

  2. R on August 10, 2015 at 12:04 pm

    I’m fairly obsessed with my credit now because I did not qualify for the lowest mortgage rate. This was a several thousand dollar mistake and now my goal is to have at least a 800+ credit score when it’s time for a mortgage renewal.

    My idea is to have only 2 credit cards and I pay them off every month. Car loan is almost paid and no more student loans. Right now, my score is 788 so I’m very close to my goal.

    Thanks for sharing the article.

  3. Clarence Verge on November 19, 2016 at 5:03 pm

    Interesting article. I am not concerned about my credit score as I have more credit than I can handle.
    I am surprised that so many people worry about paying off their mortgage quickly, using up their “fun” money during the “fun” time of their life without realizing that the dollar they spend today earned at today’s salary rates will only be worth 46.5 cents in 20 years AND their salary should have increased by a factor of 2.15 times.
    If that seems convoluted, what I mean is that if your mortgage payments were fixed for 20 years at $1000 per month and you are earning $48,000 per year now you are spending 25% of your annual gross income to pay down your mortgage but 20 years from now that $1000 will only be worth $465 in buying power and you should be earning (barring any crazy person being elected president of the U.S.) more than $100k per year.
    At that time your mortgage burden will effectively be only 5.6% of your income. Pay less and enjoy life while you can.
    There are many ways to calculate the true rate of inflation averaged over the last 50 years and they all point to a rate much higher than the official cost of living index.
    In Canada a loaf of bread was 20 cents in the early ’50s. 60 years later it was $2.00. With an average inflation rate of 3.9%/yr for 60 years the cost of most of the things we need has increased by a factor of 9.9. (1.039^60)

    I hope this generates some discussion, I may need another point of view.

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