Wow, are Canadians ever accomplished borrowers.
We've run our debt levels up to record levels, but carry it well. Credit ratings vary on average from province to province, with Quebeckers at the top and Alberta at the bottom. But nationally, the vast majority of people are acing their debt repayments.
Seventy-one per cent of Canadians have a very good or excellent credit rating, the credit agency Equifax Canada reports in data supplied to The Globe and Mail. Add those with good scores to the mix and you end up at 86 per cent. Expect to be treated well by lenders with credit scores such as this.
"You certainly would want to be in the range of very good and excellent if you want to strive for the best rates," said Regina Malina, senior director of decision insights at Equifax Canada. "Good could work, too, but if you're on the middle to lower side of good you might be seeing some impact."
That could mean you pay higher interest rates than people with top credit scores, or that you require a bigger down payment. You might also be asked to have someone co-sign your loan, or be denied credit altogether. Those are definitely risks if your credit rating is in the fair or poor zone.
Equifax, along with competitor TransUnion, is in the business of keeping track of how well people do in keeping up with their debt payments and then synthesizing this information into a score that tells lenders how big a credit risk you are.
What Equifax calls its Credit Risk Score ranges from 300 to 900, with 760 or higher considered excellent. The provinces closest to that level on average are Quebec, at 750, and British Columbia at 743. The Atlantic Provinces and Alberta and Saskatchewan, both hit by low energy prices, range between 728 and 734.
Strong average credit scores across the country speak to the odd duality of debt in this country. On one hand, the ratio of debt to net household income has been steadily rising for ages and now sits at a record high of 167.3 per cent. This is a major point of vulnerability for the economy.
And yet, default rates on mortgages and other loans are extremely low. Credit ratings reflect the minuscule default rate.
Low interest rates have encouraged borrowing, and made debt loads manageable. Rates appear stable for now, but they will eventually move higher. Ms. Malina said a modest interest-rate increase of up to half a percentage point wouldn't lead to a huge change in debt repayment and, in turn, credit scores. She sees rising unemployment as a bigger risk to our ability to carry debt.
Ms. Malina said the job of the credit risk score is to tell lenders how likely you are to fall behind 90 days or more on your debt payments in the next 12 months. Being 30 or 60 days behind is noted by credit agencies such as Equifax, but the 90-day threshold means a severe delinquency and is thus more influential.
Your record for paying debts is tracked in your credit report, which in turn is used to compile your credit score. Ms. Malina said Equifax credit reports include your payment history on loans, credit cards, mortgages and lines of credit, but not utilities such as your smartphone bill. Late payments are closely tracked by the amount, frequency and how recent they are. The report also monitors how much of the total credit available to you that you're using.
For the seven in 10 Canadians ranked very good or excellent by Equifax in terms of their credit-risk score, there's not much point in obsessing over improving the number. Ms. Malina suggests people think more about developing a habit of paying debts on time and not letting it slide. "It's really not about the scores," she said. "It's about responsible payment behaviour. Scores are just an easy way to assess the situation."
Both Equifax and competitor TransUnion offer free access to your credit report, and both charge a fee to see your credit score. You may be able to get a free view of your score through the online personal loan companies Borrowell and Mogo. If you have a good credit score, you probably won't need the kind of borrowing they offer.