What Credit Score Is Needed For A Credit Card?

A credit score is a three-digit number between 300 and 900. This number is used by lenders to determine your creditworthiness or, in other words, your ability to pay your loan back on time. The higher your number, the better your creditworthiness. That means lenders consider you to be a lower risk and are more likely to approve you for a credit card.

Doug Hoyes, co-founder of Hoyes, Michalos & Associates Inc., acknowledges that credit scores play a role in many transactions. However, Hayes says that Canadians need to rethink the point of credit scores, explaining that they aren’t for the individual’s benefit. In fact, your credit score makes you “the product” that is shopped around to lenders, who then make a decision on your creditworthiness.

When you apply for a credit card in Canada, credit card companies will first look at a few things. You need to be a citizen or resident, have the necessary identification, a source of  income and be the age of majority in your province or territory. Once the application has been completed, the credit card company will do a background check, called a “hard inquiry” into your creditworthiness. This includes checking your credit score.

With a higher credit score, you have a better chance of getting a credit card and may have more options of cards to choose from. These can include cards with lower interest rates, higher earn rates for cash back and points and perks like travel insurance, mobile device insurance and travel upgrades.

From here, the company will decide whether to approve or deny your application.

Credit scores fluctuate. In fact, your credit score may differ from one week to the next. Even if you look at TransUnion and Equifax—the two main credit bureaus where you can access your credit score—the number might vary slightly.

That’s because a credit score isn’t a static number and there are several factors that go into calculating it. The credit bureaus, who have access to your information from financial institutions, use their own proprietary algorithms and weigh accounts and loans differently. They use their own scores, too. Equifax uses the Equifax Risk Score, while TransUnion uses the CreditVision Scoring Model.

Equifax’s Risk Score uses the past 81 months of data while TransUnion’s CreditVision Scoring Model uses data from the last 24 months.

Those algorithms explain why your credit score is different when you compare a report from each bureau.

Equifax says the main factors used are weighted as follows:

• 35% – Your payment history.
• 30% – Your used credit vs. your available credit or credit utilization.
• 15% – The length of your credit history. (This is why new immigrants have a low credit score, as they haven’t been in Canada long enough to build up a credit history and they can’t transfer their history from their previous country.)
• 10% – Public records such as bankruptcy.
• 10% – Number of inquiries into your credit file.

TransUnion’s main factors are:

• Your payment history.
• Your balances or how much you owe.
• Age of your credit history.
• New credit or inquiries.
• The different types of credit you have.

TransUnion doesn’t publish the percentage breakdown of the main factors, but it’s likely similar to Equifax’s breakdown.

Plus, not all lenders are subscribed to all the credit bureaus. Hoyes says, “Lenders don’t necessarily use either Equifax or TransUnion. They can calculate their own as well.”

Then there’s the upsell product, where you may qualify for a credit card if you have another product from that financial institution, such as a mortgage.

The short answer: A good credit score is the one that gets you whatever loan or credit card you need. However, there are general ranges  interpreted by Equifax and TransUnion.

Equifax says that a score between 660 to 724 is considered good, 725 to 759 is very good and 760 and up is considered excellent.

TransUnion Canada doesn’t provide a specific breakdown, but 650 is considered good enough to qualify for a loan or credit card.

Hoyes says to focus on your credit report, as it forms the basis for your credit score.

“Let’s say I’ve saved up $500,” says Hoyes, “Should I put it in the bank and save it, or should I go get a credit card and buy $1,000 worth of stuff, but now I’ve got $500 that I can use to make the minimum payments for the next few months.”

He says your credit score might go up because you’re using credit and making payments, but it may not be the best option for you if you have credit card debt.

“I think if you’re going to obsess over something, obsess over what is right for you in your situation, and don’t obsess over a credit score.”

A credit report is the summary of your credit history. While it does not include your credit score, it does include:

• Non-sufficient funds payments or bad cheques.
• Chequing and savings accounts closed “for cause” due to money owing or fraud committed.
• Credit you use including credit cards, retail or store cards, lines of credit and loans.
• Bankruptcy or a court decision against you that relates to credit. This can stay on your report for an average of six years.
• Debts sent to collection agencies.
• Inquiries from lenders and others who have requested your credit report in the past three years.
• Registered items, such as a car lien, that allows the lender to seize it if you don’t pay.
• Remarks including consumer statements, fraud alerts and identity verification alerts.
• How much you owe.
• If you’ve made your payments on time or missed some.
• When you opened your account.
• If you go over your credit limit.
• Any personal information that is available in public records, such as a bankruptcy.

Your mortgage, HELOC, cell phone and internet payment history may also appear on your credit report if your providers send them to the credit bureaus.

Hoyes says to go through your credit report and make sure the information is correct. If there are any mistakes such as unpaid bills, fixing them can improve your credit report and your credit score. Identity theft can hurt your credit report as the thieves may have opened and defaulted on credit cards or loans in your name.

Other things you can do to improve your credit score include making your payments on time and regularly. One way to do this is to automate your payments, such as your mortgage, your subscriptions or your phone and internet. You don’t have to worry about it and your score will improve as a result.

Missing payments can hurt your credit score. That’s why it’s always better to call your financial institution instead of just skipping a payment.

Only apply for credit you need. Every time you apply for credit, a hard inquiry is made and that can lower your credit score.

Manage your credit utilization ratio. The general rule is to keep your credit owed versus credit available to below 30% but the lower your utilization score, the better.

The minimum credit score you need to get an unsecured credit card is between 650-660.

Unsecured means you don’t have to put up a security deposit or collateral, like you do with a secured credit card. Those who don’t have a good credit score can get a secured credit card, but Hoyes says to proceed with caution.

Keeping up with your payments and practicing good credit utilization can help you get a better score and an unsecured credit card.

If you’re in the market for a credit card and are curious of what you may qualify for, check out our credit card comparisons.

As we’ve mentioned before, it is possible to build credit with a low score. We’ve talked about paying bills on time, applying just for the credit you need, paying off your loans and keeping your credit utilization score low.

Another option is to get a low annual fee or no-annual-fee credit card or a prepaid credit card. Low-annual-fee credit cards often have annual fees of less than $100 a year. They won’t have the same level of perks as other cards, but they are available to people who have a fair to good credit score. Here’s our list of credit cards for bad credit for more options.

New Canadians also have credit cards that can help them build up their credit score. These cards are often no-annual-fee with a reward in the form of cash back or points.

Equifax and TransUnion have multiple ways for you to access your credit score. You can get it online from both bureaus for free and it’s updated monthly.

You can also get your report from both bureaus by mail (also for free) but you’ll have to download the forms and send them in with recognized government identification. Finally, Equifax lets you request your credit report by phone.

When it comes to your credit score, you can get your free report from Equifax and  TransUnion by mail or online.

Smaller companies like Borrowell will also provide your credit score but it comes from Equifax. Banks and other financial institutions may provide a credit score as part of their app offerings but it may not be the same score as  is provided by  Equifax or TransUnion.

Keep in mind, asking for your credit score will not affect your credit score.

A lot of us focus on our credit score but as Hoyes says, the important thing to scruitinize  is your credit report and your spending behaviour. “Correct the errors on your credit report, because that’s relatively easy to do,” says Hoyes. “It doesn’t cost you money.”

Finally, Hoyes warns, “Don’t get caught in these scams that say, ‘Oh, we can repair your credit, pay us a bunch of money’— you can do that yourself, for free.”