How does your credit score add up to your peers? Your credit score can make a significant difference in your interest rates, down payments, and overall quality of life.
The average credit score for working-age Canadians 18 to 65 ranges between 692 and 737, according to data from Equifax Canada’s 2018 consumer database.
Below, I’ll outline the latest consumer data to break down the average credit score by age in Canada. I’ll also explain how credit reporting works so that you can boost your score above the status quo.
As you may expect, there’s a strong correlation between age and credit score. Here is the average credit score breakdown, by age, according to the latest 2018 consumer credit report by Equifax Canada:
|Consumer Age||Average Credit Score|
|18 to 25||692|
|26 to 35||697|
|36 to 45||710|
|46 to 55||718|
|56 to 65||737|
One interesting trend from the report is that most age groups had lower scores in 2018 than ten years prior in 2008.
This may be due to increased reliance on credit and the fact that people are financing items such as phones and laptops that they would have normally paid upfront for in the past.
The one exception to this rule was the 18 to 25 age group. Surprisingly, this age group had a higher average score in 2018 than in 2008 (692 in 2018 vs 680 in 2008).
Looking at the table above, it’s clear that younger people have statistically lower scores than middle-aged and older Canadians. As age increases, credit scores tend to as well.
Some of the reasons behind this include:
- Most public schools don’t teach teens about credit reporting and how to maintain/build their credit score
- As a result, many young adults hurt their credit scores before they even know how to use their credit responsibly
- Younger individuals typically earn less, which can increase their reliance on credit
- Older consumers have a longer credit history, which is a key factor that determines credit scores
- Older consumers tend to be more financially responsible and have more experience budgeting
Of these reasons, I would argue that the overall lack of credit education is one of the most harmful.
Young adults often apply for credit cards without properly understanding the terms or get approved for auto loans with sky-high interest rates that leave them in an “upside-down” loan that they can barely afford to pay.
If you’re a young person reading this, I’d encourage you to learn more about how credit works, explore your options, and learn how to properly budget before applying for loans or credit cards.
The better you learn to utilize and manage your credit, the easier your life will be.
Consumer credit scores range between 300 and 900, with 300 being the lowest possible score and 900 being the highest possible score.
Equifax considers a score over 660 as “good” in Canada. With a score of 660 or above, you’ll have a higher chance of getting approved for an auto loan, home loan, credit card, and other lines of credit.
Here’s a quick breakdown of the other credit ratings:
- Poor: 300 to 559
- Fair: 560 to 659
- Good: 660 to 724
- Very Good: 725 to 759
- Excellent: 760 to 900
Due to recent inflation, Canadians increasingly rely on credit cards to keep up with daily living expenses. When used responsibly, credit cards can help you build your credit. When used incorrectly, though, they can hurt your credit.
With poor credit, you’re unlikely to get approved for loans, financing, or a credit card. Any financing you’ll receive will likely be a high-interest low or no-credit loan. The only type of credit card you’ll be approved for will be a secured credit card, which is pre-paid upfront.
With good, very good, or excellent credit, you’ll begin to receive more loan offers, get approved for better credit cards (many of which offer rewards), and receive more favourable interest rates.
The real advantage of having good credit is that you save on interest.
For example, you may receive an auto loan with 6% APY instead of 12% APY. While it may not sound like much, 6% APY of compounding interest can really add up (or save you a lot of money) when it comes to an expensive purchase like a car.
Credit reporting is a fairly simple concept. Whenever a consumer applies for a loan, a line of credit, or opens a revolving credit account, the lender reports the account to the two credit bureaus in Canada, Equifax and TransUnion.
Here are the actions that are typically reported to the credit bureaus:
- When you apply for a loan, card, or account (this is called an inquiry)
- When you make payments (on time or late)
- When you close the account and pay it off
- If the account falls into “collections” due to unpaid debt
These factors all contribute to your overall credit score. The simplest way to maintain a good credit score is to make all of your payments on time and pay off your credit cards by the end of each month.
Curious to see your credit score? You can sign up for a free account with Borrowell to get your free credit report.
You may find that your Equifax and TransUnion scores are different. This is typically due to an error on the lender’s behalf.
Sometimes, a lender may neglect to report payments to both bureaus. Sometimes, lenders may even report incorrect data to the bureaus, which could negatively or positively affect your score.
This is why it’s always a good idea to check your full credit report for any inaccurate information.
A consumer’s credit report is determined by five key factors, which are listed in descending order by their weight on credit score. These are:
- Payment History: How many payments you’ve made on time vs how many payments you’ve missed. Timely payments help your credit score, while reported late payments can hurt your credit score.
- Credit Utilization: How much of your available credit you’ve used. Maxing out your credit cards will increase your utilization rate and can hurt your score. Paying off your credit cards before each monthly statement will decrease your utilization rate and can improve your score.
- Credit History And Length: Accounts that have been open for longer periods of time, such as credit cards or auto loans, indicate that the consumer is a responsible individual who values their relationship with lenders. Closing accounts can reduce your credit history and may hurt your score.
- Types Of Credit: The greater diversity of credit you have on your report, the better your score will be. For example, a diverse credit report may show that you have two credit cards, an auto loan, a home mortgage, and a small personal loan that are all in good standing.
- Credit Inquiries: While diversifying your credit can improve your score, you should avoid applying for too many lines of credit in a short period of time, as it can indicate desperation or frequent denial. Inquiries typically stay on your credit report for two years, which is a good period of time to wait before applying for new lines of credit.
Conclusion – How Does Your Credit Score Stack Up?
Is your credit score lower or higher than the average credit score in your age group?
The good news is that credit scores can always be improved, no matter how bad (or good) they may be.
You can even come back from mistakes such as collections accounts by using a pay-for-delete letter, in which you agree to pay off a debt in exchange for it being removed from your credit report.
Want more helpful tips on building and improving your credit? Check out my guide to improving your credit score by 100 points next!