Despite having one of the highest average credit scores for a major Canadian city, Toronto has room for improvement.

The Big Smoke boasts an average score of 690, which falls within the lower range of “good” credit. Generally speaking, a score of 690 isn’t anything to scoff at; most lenders will view you as lower risk than someone with rock-bottom credit.

However, it’s a far cry from Equifax’s “excellent” range of 800 to 900. People with these scores have the best chances of being approved for more money at better terms.

How Are Canadian Credit Scores Calculated?

Canada has two main credit bureaus that collect information about your borrowing history to create a record of your financial activity. This is called your credit report. Using the information inside this file, the bureaus crunch numbers to translate financial behaviour into a three-digit score.

Your score is based on five major factors:

1. Payment History

Accounting for 35% of your score, payment history is an important element of your financial reputation. It details whether you pay your debt on time. Prompt payments help build a better score, whereas late payments can drop your score.

2. Credit Utilization

Your utilization ratio is the next biggest factor, worth 30% of your score. It calculates how much of your available credit (from lines of credit and credit cards) you use at any given time. Maxing out these accounts is an obvious faux pas; however, even using half of your limit could hurt your score. Most advisors recommend aiming for less than 10% and never exceeding 35%.

You should limit these revolving accounts beyond the potential to affect your score. The lending experts at Fora remind borrowers to pay the full balance whenever possible to free up their available limit, so they have credit in an emergency. You may also reduce interest accrued if you don’t carry a balance for months on end.

3. Credit History

Worth 15%, your history considers how long you have been a borrower. A longer history is worthwhile, provided you pay bills on time and maintain a low ratio.

4. Credit Mix and Public Records

Public records such as bankruptcy or collections can make a big dent in your score for a long time, even though this factor only represents 10% of the calculation.

It also considers the different kinds of accounts you have in your file. Working with the previous three factors, your mix can demonstrate you can handle a variety of accounts responsibly.

5. Credit Inquiries

Nearly every time you apply for a new personal loan or mortgage, the lender will check your credit. This process will add a hard inquiry into your file. Too many hard inquiries in a short period cast doubt on your financial situation.

What Else Factors into Your Financial Reputation?

Beyond your three-digit score, you may be judged by other financial stats, like your employment history and salary. Perhaps the biggest one is your debt-to-income (DTI) ratio, which shows how much of your income goes to paying down debt.

The CBC reports that Canadian DTI was 181.6% in 2023. In other words, the average Canadian owes $1.82 for every dollar of household disposal income they earn.

While a high DTI doesn’t necessarily mean your score will be low, this debt load may make it harder to perform well within the payment history and utilization ratio categories of your file. As a result, a high DTI can interfere with your next personal loan.

How to Improve Your Score?

Whether your score is 690 or something lower, the same advice applies. Work on paying your bills on time to ensure you keep delinquencies and public records off your file. Next, try to keep your utilization below 30%, working to keep it below 10%.

Most people will need to rearrange their budget to support these two habits. Consider downloading a budgeting app or following this tutorial to get started.