An 850 credit score is just steps away from being perfect. A credit score is a three-digit number between 300 and 900 that determines if you are creditworthy in the eyes of lenders. Higher credit scores increase your chances of getting a loan from a lender.
As you know, financial institutions like banks use credit scores to determine if you qualify for lending, the amount they’re willing to lend, and the interest rate to charge you. Your credit score can impact your access to other things too, like a place to live or employment.
Potential employers use them to determine your sense of financial responsibility. Many landlords even consider your credit score before renting an apartment to you. In addition, an 850 credit score qualifies you for credit cards, personal loans, lower interest rates, and other financial incentives.
So what exactly does it mean to have an 850 credit score in Canada? Here’s what it means, how it impacts you, and why you should strive for a perfect credit score.
- #1. Make your payments on time
- #2. Pay in full, whenever possible
- #3. Use your credit card, pay it off
- #4. Check your credit report regularly
- #5. Watch your credit utilization ratio
- #1. Payment History: 35%
- #2. Revolving debt owed: 30%
- #3. Length of credit history: 15%
- #4. New credit applications: 10%
- #5. Public records & types of credit used: 10%
What is a credit score in Canada?
The Government of Canada defines a credit score as “ a three-digit number that comes from the information on your credit report.” The higher the number, the better your credit score is and the more likely you are to qualify for credit and lower interest rates. The lower your credit score, the worse your credit score is and the more difficult it becomes to qualify for a loan, and the more likely you are to be charged higher interest rates.
Generally, credit scores range from 300 to 900, depending on the credit bureau. Canada has two credit bureaus: Equifax and TransUnion. These are private institutions responsible for keeping track of your credit file and the information in it. They get that information from the financial institutions, lenders, creditors, and credit card issuers you do business with.
Credit Score Ranges
A credit score falls into one of 5 risk categories, called credit score ranges, that tell creditors how creditworthy a borrower is. They also give you an idea of how you compare to your peers, and how likely you are to qualify for loans and other credit products. According to Equifax, the credit score ranges below are a reliable guideline:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-900
A higher credit score means that you have a consistent track record of managing debt responsibly, which means potential lenders view you as a reliable borrower capable of repaying your debts on time.
Lenders often regard borrowers with credit ratings between 670 and 900 as acceptable and creditworthy. However, those with credit scores below 580 will find it challenging to get approved for lending, as most traditional lenders are unlikely to work with you.
So, fret not if your credit score is below 850; you are in a good place but you can still increase it to achieve a perfect score. Even if you haven’t achieved an 850 credit score, you can still move up in the world. Here’s how:
5 tips to achieve an 850 credit score or higher
Regardless of your credit score, there is still room for improvement. However, all you have to do is follow the simple steps laid out below:
#1. Make your payments on time
On-time payments help you to keep an excellent credit report. You can set an automatic reminder to avoid missed or late payments if you struggle to remember. Late or missed payments can cost you valuable credit points, damaging your credit score. So, to avoid missed payments, be sure to set due date reminders before the actual due date so creditors receive your payments on time.
#2. Pay in full, whenever possible
If you can't pay the full balance prior to the due date, you should at least pay the minimum payment amount indicated on your statement. If you are unable to even make the minimum payment, contact your lender immediately and make an arrangement to avoid negative marks on your credit report.
#3. Use your credit card, pay it off
You can easily use your credit card to improve your credit if you do it right. Avoid maxing out your credit card at all costs. Instead, aim at keeping the balance well below the limit because the higher your balance on things like credit cards and lines of credit, the more it hurts your score. The ideal practice is to use your credit card regularly and then pay off the balance in full before the statement date.
#4. Check your credit report regularly
A frequent check of your credit report helps you ensure it is accurate, and up to date, and helps you spot errors. You can sign in to Equifax and TransUnion to request a free copy of your credit report every 12 months without impacting your credit score. In addition, if you spot any incorrect information, you can file a dispute to correct your Equifax report or correct your TransUnion report.
#5. Watch your credit utilization ratio
Your credit utilization ratio is a number that measures the balances owing on your credit cards and lines of credit (LOC) to show how much available credit you have used up. For instance, if you have a credit card limit of $2000 and you owe a balance of $1000, your utilization rate on that available credit is 50%, which is bad and hurts your score.
Therefore, prioritize paying down your debt on things like credit cards and LOCs to reduce your credit utilization ratio. Experts advise that you not exceed a utilization rate of 30% in order to protect your credit score. The best practice is to use your credit cards, but then pay the balances off in full each month, before the statement date if possible.
Remember that rebuilding or improving your credit score is not instantaneous; it takes discipline to consistently engage the points mentioned above. However, you can rebuild or improve your credit score with patience and time.
The benefits of an 850 credit score
Honestly, it can be discouraging to build your credit score, especially if it’s low because it takes time and patience. But knowing some benefits of a good credit score can be the motivation you are looking for to start the journey to improving your credit score. There are many benefits of having a good credit score. Below are some of them.
Lower interest rates
With an 850 credit score or more, you can easily qualify with lenders for large purchases like buying a new home, purchasing a car, or expanding your business. You will also get access to the lowest interest rates.
Better lending terms
An excellent credit score like 850 or more can fetch you better credit terms than what a fair or bad score can get. As a result, potential lenders will be more inclined to work with you, giving you more flexible and creative terms because they believe you are worth it.
Higher credit limits
With an 850 credit limit or more, you qualify for higher credit limits on lines of credit, credit cards, and other credit products. It also provides a more flexible financial solution in an emergency.
Top-tier financial products
If you have an excellent credit score, you qualify can qualify for premium rewards and benefits reserved for a select few. That can include higher earn rates for reward points, cash back, and travel points as well as prestigious credit cards with additional perks not available on regular credit cards.
- Frais annuels: 499 $
- Taux d'intérêt sur les achats: 20.99 %
- Taux d'intérêt sur les avances de fonds: 23,99 % (21,99 % pour les résidents du Québec)
- 5 points récompenses BMO par dollar sur l'épicerie, l'essence, les restaurants et repas à emporter, les voyages et les achats en pharmacie
- 1 point récompense BMO par dollar sur tous les autres achats
How to calculate your credit score
In Canada, Equifax and TransUnion take into account 5 key factors when calculating your credit score. While all of them contribute to your credit score, some factors have more serious consequences than others. Let's discuss the five factors and how important each one is.
#1. Payment History: 35%
Your payment history has the biggest impact, contributing to 35% of your credit score. It is a record that reflects on-time payments, late payments, and missed payments for every account on your credit report.
If late, it shows how late you were, and if you missed your payments, it records your missed payment. Late and missed payments can stay on your payment history for years. With this knowledge, commit to making your full payments on time because a positive history equals a higher credit score while a negative history damages your credit score.
#2. Revolving debt owed: 30%
When you apply for credit, the amount of debt owed on your existing credit cards and lines of credit matters to a lender. It reveals whether you are disciplined enough to use available credit wisely, or if you rely on it to make ends meet or have a spending problem. The amount you owe vs how much you have access to is called the credit utilization ratio and accounts for 30% of your credit score. Pay off your credit cards to boost your credit score quickly.
#3. Length of credit history: 15%
This accounts for 15% and shows how long you've been a borrower and how well you have managed each credit account over time. For example, If you have had credit in the past, your credit report should give accurate information on how you managed it like your payment history and how much you owe. The older an account on your file is, the better because it gives lenders more data to see how well you manage debt over longer periods of time.
#4. New credit applications: 10%
This part of your credit score, which accounts for 10%, considers how frequently other creditors are checking your credit file. Whenever you apply for new credit, the lender performs a “hard pull,” also known as a “hard inquiry,” on your credit account. Each hard pull causes your credit score to drop a few points.
A hard inquiry here and there is not detrimental to your score, but several inquiries in a short period of time can cause your score to drop significantly. It is a red flag that you are desperate for credit because of a financial crisis, which makes you a riskier person to lend to.
#5. Public records & types of credit used: 10%
This is the smallest factor that only accounts for 10% of your credit score. This part explains the overall way you handle money. Public records are bad things that lower your score, like bills and credit accounts sent to collection agencies, or a bankruptcy. It also carefully considers the different types of credit used.
For instance, a mix of revolving credit accounts like credit cards and lines of credit in addition to personal installment loans, a mortgage, student loans, etc. is good. It tells creditors you are able to manage different types of credit that work differently and come with different repayment obligations. This part will perfectly align if you manage your finances wisely and only apply for credit when necessary.
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In summary, an 850 credit score is an excellent score that can easily qualify you for better credit products and loans at discounted interest rates. If you have an 850 credit score, don't just relax. Strive to improve it to 900, which is considered a “perfect” credit score in Canada.
However, if you are yet to attain an 850 credit score, don't be discouraged. Follow the steps this article has laid out for you and you’ll achieve your goal in no time.
If you have an 850 credit score, you are in the top tier of desirable borrowers! According to Equifax, credit scores from 800-900 are considered excellent and give you access to the most perks and benefits.
An 850 credit score means you are well above the average credit score. With an 850 credit score, you can easily qualify for better credit products and loans at lower interest rates. It tells lenders you always make your payments on time, are not over-indebted, and manage your financial commitments wisely.
Credit scores are in constant flux from month to month, depending on your balances owed and other factors. However, the age group with the highest average credit score are people ages 65 and older, likely because of the age of their credit file and carrying less debt.
An 850 credit score is considered nearly perfect, with a great impression of impeccable credit management. The chances of owing debts and going bankrupt are considered extremely low. Creditors will be willing to offer you the best credit services at lower interest rates.
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