Somewhere in a database sits a number that influences your mortgage rate, your lease approval, your credit card limit, sometimes even your insurance premium. A number that can cost you — or save you — tens of thousands of dollars over a lifetime.
And yet most people have never looked at it. Many are even afraid of it: afraid to look, afraid that simply checking will make it drop, afraid of discovering a bad result they would not know how to fix.
That avoidance is understandable. A credit score feels like a grade on an exam you do not remember taking, awarded under rules nobody ever taught you. But avoidance has a real cost — and the good news is that the mechanics are far simpler than people think, and a score can be repaired and maintained like anything else.
What is it, exactly?
In Canada, the credit score is a number between 300 and 900, calculated by two private agencies: Equifax and TransUnion. Every time you borrow — credit card, car loan, line of credit, mortgage — your lenders report your behaviour to these agencies: do you pay on time, how much do you owe, and for how long.
The score condenses all of that into a single number, which answers the one question lenders care about: how likely is this person to repay?
- 760 and above: excellent — the best terms are available to you
- 660 to 759: good to very good — most products are available on good terms
- 560 to 659: fair — approvals are possible, but at less favourable rates
- Below 560: difficult — traditional lenders hesitate
The two agencies may show slightly different numbers for the same person: they do not receive exactly the same information and do not use exactly the same formula. That is normal, and it is not an error.
The five factors that determine your score
The exact formula is proprietary, but the main components are known, and so is their approximate weight.
Payment history (about 35 %)
The heaviest factor by far. Do you pay your bills on time? A single payment more than 30 days late can stay on file for six years. Conversely, years of on-time payments build a solid score — even with modest balances.
Credit utilization (about 30 %)
This is the ratio between what you owe and what is available to you. A card with a $5,000 limit and a $4,500 balance signals a household under pressure, even if payments are on time. The commonly cited rule: stay under 30 % utilization. Under 10 % is better still.
Length of credit history (about 15 %)
The older your accounts, the better. That is why closing your oldest credit card — a reflex people believe is responsible — can paradoxically hurt: you erase history.
New applications (about 10 %)
Every credit application triggers a check by the lender (a "hard inquiry"), which shaves off a few points temporarily. Several applications close together signal a precarious situation.
Credit mix (about 10 %)
A file showing that you handle both revolving credit (a card) and instalment credit (a car loan) well inspires a little more confidence than a single-product file.
The three myths that do the most damage
Myth 1: "Checking my score lowers it." False, and it is the costliest myth because it feeds the avoidance. Checking your own score is a "soft inquiry": it has no impact whatsoever. It is credit applications made by lenders that shave off points. You can check your score every week without consequence.
Myth 2: "You have to carry a balance to build credit." False, and this myth costs 20 % interest for nothing. What builds credit is using the card and then paying on time. Paying the balance in full every month builds exactly the same history — for free.
Myth 3: "A bad score is permanent." False. Most negative items fall off the file after six or seven years, and the score responds to good behaviour long before that. Someone who gets their payments back on track and lowers their utilization generally sees progress within months, not years.
How to check your score for free
There is no longer any reason to pay, or to stay in the dark. In Canada:
- Borrowell gives you free access to your score and your Equifax file, updated regularly
- Credit Karma does the same for TransUnion
- Several financial institutions now display your score directly in their app
Checking both agencies once a year is worth it, for a reason people overlook: errors on file do happen. An account that is not yours, a payment wrongly marked late, an identity fraud in its early stages. Spotting an error early and disputing it with the agency can lift a score that was unfairly dragged down.
The math: what the score really costs
Let us make it concrete with the scenario where the score weighs the most: the mortgage.
Two households buy the same property with a $350,000 mortgage, amortized over 25 years. The first has an excellent file and gets the best terms; the second, with an average file, is offered a rate one percentage point higher — a realistic gap between a strong file and a weak one, particularly if the latter has to go through an alternative lender.
For illustration, with a gap of 5 % versus 6 %:
- Household A: about $2,046 per month
- Household B: about $2,255 per month
Difference: about $209 per month. Over 25 years: more than $62,000.
"Sixty-two thousand dollars. Not for a bigger house, not for a better neighbourhood — for the same loan, differentiated only by a number in a database."
And the mortgage is only one example: the same mechanism applies, on a smaller scale, to the car loan, the line of credit, and every renewal. That is what makes the credit score one of the rare free financial levers: maintaining it requires no capital, only habits. It is exactly the idea developed in our article on leverage without debt.
The maintenance plan, in five habits
- Automate at least the minimum payment on every account. The 30-day late payment is enemy number one, and it usually happens through forgetfulness, not lack of money.
- Keep utilization under 30 % of your limits — ideally less. If your limits are low, requesting an increase (without spending more) mechanically improves the ratio.
- Do not close your old cards without reason. An old card with no annual fee, used for a small recurring expense paid automatically, works in favour of your credit history.
- Space out your credit applications. Group rate shopping (car, mortgage) into a short window — agencies generally treat closely spaced applications of the same kind as a single one.
- Check your file once a year with both agencies, and dispute any error in writing.
Nothing on this list requires a high income or advanced knowledge. It is probably the financial optimization with the best effort-to-impact ratio there is — well ahead of hunting for the best ETF or the perfect investment.
Because before making your money grow, there is a step many people skip: stop handing it needlessly to lenders.
Informational content only — not official financial advice. The rates and the mortgage example are illustrative; real gaps vary by lender, profile and market. Score ranges and factor weightings are approximate and may differ by agency. Consult a professional for your specific situation.