Before applying for any type of loan in Canada—whether it’s a personal loan, mortgage, or line of credit—your credit score plays a crucial role in determining your eligibility, interest rate, and loan terms. In 2025, more lenders are relying on advanced credit checks to assess risk, making it more important than ever to understand where you stand financially.
In this guide, we’ll break down what your credit score means, how it affects your borrowing ability, and how you can improve it before applying for a loan in Canada.
📊 What Is a Credit Score?
Your credit score is a three-digit number that reflects your creditworthiness—essentially, how likely you are to repay debt. In Canada, credit scores range from 300 to 900, with higher scores indicating better credit health.
Credit scores are calculated by two main bureaus:
- Equifax Canada
- TransUnion Canada
💡 What Affects Your Credit Score in Canada?
- Payment history (35%) – Late or missed payments negatively impact your score.
- Credit utilization (30%) – Using a high percentage of your available credit can hurt your score.
- Credit history length (15%) – A longer credit history usually improves your score.
- New credit inquiries (10%) – Too many recent applications may signal financial stress.
- Credit mix (10%) – A healthy combination of credit types (credit cards, loans, etc.) helps.
📉 Why Does Your Credit Score Matter When Borrowing?
Lenders use your credit score to determine:
- Whether you’re approved or denied for a loan.
- The interest rate you’ll be charged.
- How much money you can borrow.
- The loan term and repayment conditions.
A higher score can save you thousands of dollars in interest over the life of a loan.
📈 Credit Score Ranges in Canada
| Credit Score Range | Credit Status | Borrowing Outlook |
|---|---|---|
| 800 – 900 | Excellent | Easy approval, best rates |
| 740 – 799 | Very Good | Strong approval chances |
| 670 – 739 | Good | Generally approved |
| 580 – 669 | Fair | Higher interest, limited offers |
| 300 – 579 | Poor | May need a co-signer or security |
✅ How to Check Your Credit Score for Free in Canada
You can check your credit score at no cost using:
- Borrowell
- Credit Karma
- Equifax or TransUnion (basic versions)
- Most major Canadian banks (RBC, Scotiabank, BMO, etc.)
Checking your score does not affect your credit when using these services.
🛠️ How to Improve Your Credit Score Before Applying for a Loan
- Pay all bills on time (especially minimum payments).
- Keep credit card balances below 30% of their limit.
- Avoid applying for multiple loans in a short period.
- Don’t close old credit accounts unless necessary.
- Check your credit report for errors and dispute them if found.
💬 Should You Apply for a Loan with Bad Credit?
If your credit score is low, you can still apply for loans, but:
- Expect higher interest rates.
- Consider secured loans or credit builder loans.
- Look for lenders who specialize in bad credit loans.
- Focus on improving your score while making on-time payments.
📌 Final Thoughts
Your credit score is more than just a number—it’s a financial passport that influences your access to credit in Canada. Before applying for a loan, take time to understand your score, address any red flags, and strengthen your financial profile.
The better your credit score, the more loan options—and savings—you’ll have in 2025.