From getting an apartment to getting a loan, your credit score is key. How it’s determined and how to bounce back from a bad one

It may seem like just a harmless three-digit number, but your credit score has a major impact on your financial well-being. 
Credit scores touch almost every part of our financial lives, says Credit Karma spokesperson Emily Childers. They’re imperative to achieving key life milestones such as renting an apartment, getting a credit card or auto loan, or buying your first home. The higher your score, the more likely you are to qualify for loans, competitive interest rates — even a place to live.
A credit score is a number between 300 and 900 that’s calculated based on the information in your credit report — a summary of your credit history — at the time the score is calculated. Equifax’s website states that “credit scores from 660 to 900 are generally considered good, very good or excellent.”
The credit score was designed to help banks and lenders decide whether to approve somebody’s application for credit or a loan, says director of consumer advocacy for Equifax Canada Julie Kuzmic. “It’s a behavioural prediction,” Kuzmic says. “It is an indication of the likelihood that somebody will pay their bills on time based on the information available in the credit report.”
Landlords often ask potential renters for consent to check their credit histories before agreeing to rent to them. Some jobs also require a credit check. The government will do credit checks to ensure somebody qualifies for a government benefit. In some provinces, insurance companies may also conduct credit checks. All told, your credit history can have a major impact on your quality of life. So how can you keep it healthy?
The most important credit-scoring factor is your payment history. “Having a healthy history of on-time payments will help your score the most, and missing payments can cause the most harm,” Childers says. “The longer the streak of missed payments, the more negative impact it can have on your score.”
With Canadians increasingly relying on credit cards to purchase essentials, missed payments are becoming more common. A recent Equifax report found that one in 23 consumers missed a payment on at least one credit product in the second quarter, with missed-payment rates highest among Canadians aged 26 to 35.
Toronto resident Delecia Graham found herself with a low credit score in her early twenties after signing up for multiple credit cards.
“I’m originally from the Bahamas where credit cards are typically linked to a bank account. It’s a very different economic system,” she says. Graham, who worked three part-time jobs while studying at Florida A&M University, signed up for several store credit cards that offered discounts. “As a university student on a budget, I thought ‘Those 20 or 30 per cent discounts could add up.’ But no one discussed the long-term impacts.”
Graham, now 41, became aware of the importance of a healthy credit score during her junior year, when she applied for an apartment rental. At the time, she was dealing with credit card debt and student loans while barely making $40,000 a year. Her prospective landlord asked for her credit score, income and employment history. It was a pivotal learning moment for her.
“I always knew about credit, but didn’t realize how it can impact where you live and how you live.” Graham was approved for the apartment, but living pay cheque to pay cheque, she struggled to keep up with credit card payments. “At one point, my credit was barely 600. The anxiety was crushing. I felt like the walls were closing in,” she says.
Another important factor when it comes to how your credit score is determined is credit utilization, which looks at the difference between the balance that was last reported and the credit limit on the account. In other words, how much of that credit are you using? “There is typically a correlation between using a lot of available credit and then starting to miss bill payments,” Kuzmic says.
NerdWallet Canada spokesperson and personal finance expert Shannon Terrell recommends keeping your credit utilization below 30 per cent, adding “the lower, the better.” Keep in mind that even if you pay your credit card bill in full each month, you can still appear to have a high utilization rate. “It’s not about how much you’re spending on your credit card, it’s how much (of your balance) is reported to the bureau each month,” she says.
Another factor when it comes to credit scores is hard inquiries. When applying for financial products, a credit or lender will review your credit report to decide whether you’re creditworthy, Childers explains. When you apply, that results in what’s called a hard inquiry. The more hard inquiries you make the more your score can be impacted. 
That’s because statistically, people who have applied for a lot of credit in a short period go on to miss payments, Kuzmic says. However, there are special treatments for mortgage-related and car loan-related applications. If there are a number of inquiries around the same time that are related to mortgages or car loans, they’re grouped together as one inquiry when the credit score is calculated, so you won’t be penalized for shopping around to get the best rate.
The amount of time someone has been using credit is also a factor when it comes to scoring. Getting a secured credit card — a card that requires a security deposit — can be a practical place to start building a credit history or to improve a score, Terrell says. “Newcomers to Canada may also want to explore newcomer-oriented financial products, like newcomer credit cards,” she adds. “These cards typically don’t require a credit check to qualify and can serve as the foundational building block to begin building your Canadian credit history.” 
A new Equifax initiative allows lenders to access newcomers’ foreign credit scores and histories; Equifax will convert the foreign score to a Canadian one, then make it available to lenders for a fee.
Closing a credit card could also have a negative impact on your credit score, Childers says — especially if it’s one of your oldest accounts. “Closing an account can lower the total amount of credit extended to you, which impacts your credit utilization, and it also reduces the length of your credit history.”
It’s important to keep an eye on your credit report, too, because all credit score versions will be based on the information within it. “That’s where you want to make sure everything is accurate,” Kuzmic says. “Mistakes aren’t an everyday thing, but there are times when someone else’s information lands on your report for whatever reason. You want to check regularly, because the worst time to find an error is when you’re trying to close on a mortgage or your car just broke down.” Kuzmic recommends checking your report twice a year at minimum.
You can access a free copy of your credit report, updated each month, for free through Equifax and TransUnion. If you find information that you believe is inaccurate, incomplete or a result of fraud, you can file a dispute with the credit bureau.
When Graham decided to take action to raise her credit score, she reached out to her creditors directly. “I told them, ‘Hey, I need help. I cannot afford this current payment. What can we do to work it out?’ ” One of the people she spoke to recommended a non-profit credit counselling agency that could help her consolidate her debt — combining many loans into one new one, often with a lower interest rate.
The agency consolidated all of Graham’s debt and created a three-year repayment plan. It also negotiated with each of her creditors, some of whom agreed to reduce their interest rate or stop charging interest altogether. “Having the interest significantly reduced allowed me to pay (my debts) off faster.”
Non-profit credit counselling agencies are “an amazing resource, especially for people feeling overwhelmed,” says Kuzmic — just be cautious. “If you have to pay (for the service), you might not be looking at a non-profit credit counselling agency,” Kuzmic says. Also, watch out for claims that seem too good to be true, such as “Increase your credit score by 100 points in 30 days!”
After just two years of sticking to her plan, Graham was out of debt, though “it took about a year before I started to see my credit score increase.” During those two years, Graham made sure she didn’t acquire debt.
These days, Graham has a healthy credit score and is serious when it comes to paying off debt. “If the cash isn’t available, then I don’t put it on my credit card,” she says. “I can’t afford to mess up my credit, because that allows me to negotiate lower interest rates. Credit is freedom.”
In 2008, Graham became an investment adviser. Now, she wants to normalize the conversation around women and money through her website, Spair Coins.
“You would be surprised at how many people are well-educated and accomplished, but aren’t having important money conversations,” she says. “I just want to change the narrative. I want to be able to say, ‘I’ve been in this game for 22 years and I’ve seen it all. Here are the people you need to have in your circle, and here are the questions you should be asking.’ ” 
Kuzmic recognizes it can be hard to prioritize repaying debt if you don’t feel you can make all the minimum payments. “The lenders want their money back, so they want to know if you’re struggling,” she says. It can be really hard for someone to call their bank and tell them they can’t pay this month, but it’s really OK, Kuzmic says. “A credit score isn’t a moral judgment, it’s just a calculation of numbers based on some aspects of your credit background.”
Above all, Terrell adds, be patient and consistent. “Credit rehabilitation takes time, but every positive action helps.”