Debt & Credit
Your credit score affects everything from mortgage rates to rental applications. And if you're carrying high-interest debt, every month you wait costs you real money.
How Credit Works in Canada
Canada has two credit bureaus — Equifax and TransUnion. They track your borrowing history and assign you a credit score between 300 and 900. Here's what the ranges mean:
| Score Range | Rating | What It Means |
| 800–900 | Excellent | Best rates, easy approvals |
| 720–799 | Very Good | Strong rates, few restrictions |
| 660–719 | Good | Standard rates, some limits |
| 575–659 | Fair | Higher rates, may need co-signer |
| 300–574 | Poor | May be denied credit entirely |
Five factors determine your score: payment history (35%), credit utilization (30%), length of credit history (15%), new credit inquiries (10%), and credit mix (10%). The two that matter most — paying on time and keeping balances low relative to your limits — are entirely under your control.
The Real Cost of High-Interest Debt
Canadian credit cards typically charge 19.99% to 22.99% APR. At 20% interest, a $5,000 balance costs you $1,000 per year just in interest. If you only make minimum payments (typically 2-3% of the balance), that $5,000 debt could take over 20 years to pay off and cost you more than $7,000 in total interest.
This is why the recommended financial order puts high-interest debt payoff ahead of investing: paying off a 20% credit card is mathematically equivalent to earning a 20% guaranteed, tax-free return — something no investment can reliably match.
Debt Payoff Strategies: Snowball vs Avalanche
Two proven methods dominate Canadian debt repayment advice. The right one depends on your psychology:
| Method | How It Works | Best For |
| Debt Snowball | Pay minimums on everything, throw all extra cash at the smallest balance. When it's gone, roll that payment into the next-smallest debt. | People who need quick wins to stay motivated. Knocking out small debts fast builds momentum. |
| Debt Avalanche | Pay minimums on everything, throw all extra cash at the highest interest rate debt. Mathematically optimal — saves the most in total interest. | People who can stick to a plan without emotional reinforcement. |
The avalanche saves more money, but the snowball has a higher completion rate in studies. Choose the one you'll actually follow through on. If you're unsure, start with the avalanche — you can always switch if you're losing steam.
When to consider a consumer proposal: If your unsecured debt exceeds your ability to repay (typically $10,000+ and no realistic path to payoff within 5 years), a Licensed Insolvency Trustee can negotiate a consumer proposal — a legal agreement to pay a portion of your debt over up to 5 years. This stops collection calls and interest, but it damages your credit for 3 years after completion. Exhaust other options first.
Featured Guides
How to Read Your Credit Report
Get your free report from Equifax and TransUnion, understand rating codes, and spot errors that could be dragging down your score.
Best Credit Cards in Canada
Match the card to your spending: cash back for everyday purchases, travel rewards for frequent flyers, low-interest for carrying a balance. Start with our banking comparison to pair the right card with the right chequing account.
Debt Consolidation in Canada
Three paths to simplify debt: balance transfer cards (0% intro periods), consolidation loans (fixed payments), and consumer proposals (legal protection). See our step-by-step guide to paying off debt faster for which approach fits your situation.
How to Improve Your Credit Score
The two factors that matter most: payment history (35% of your score) and credit utilization (30%). Pay on time, keep balances under 30% of your limit, and check your report for errors. Full walkthrough in our credit report guide.
Quick Facts
- Your credit score in Canada ranges from 300 to 900 — anything above 660 is "good," above 725 is "very good"
- Credit reports are free — you're legally entitled to one free report per year from both Equifax and TransUnion
- High-interest debt (credit cards at 20%+ APR) should be your #1 priority before investing or saving aggressively
More Resources
- Saving → — Build your emergency fund before tackling debt
- Start Here → — The recommended financial order: budget → emergency fund → debt → invest
- Tools → — Free calculator to plan your debt payoff