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
Compare 20+ Canadian credit cards across cash back, travel, no-fee, student, and credit-building categories. Find the right card for how you actually spend.
Debt Consolidation in Canada
Compare five paths: balance transfer cards, consolidation loans, credit counselling, consumer proposals, and DMPs. Find the right approach for your debt level and credit score.
How to Improve Your Credit Score
Step-by-step guide covering all five credit factors: payment history, utilization, credit age, inquiries, and credit mix. Includes dispute process, secured cards, timeline expectations, and common myths debunked.
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
Building Credit When You Have None
New Canadians, young adults, and anyone without a credit history face a catch-22: you need credit history to get approved, but you can't build history without being approved. Here's how to break the cycle:
- Secured credit card — you put down a deposit (typically $300-500) as collateral. Use it for a small monthly purchase, pay in full, and after 6-12 months you'll have a credit score. Capital One and Home Trust offer secured cards in Canada.
- Become an authorized user — if someone with good credit adds you to their card, their payment history reports to your file. You don't even need to use the card.
- Rent reporting — services like Borrowell's Rent Advantage report your rent payments to Equifax. Landlords don't normally report rent, so this can be a fast way to build history.
- Cell phone plans — regular phone bill payments build a payment pattern. Most Canadian carriers report to at least one credit bureau.
When Good Debt Makes Sense
Not all debt is destructive. Some debt — used deliberately — can improve your financial position:
| Type | Typical Rate | When It Makes Sense |
| Mortgage | 4-6% (2026) | Building equity instead of paying rent. Keep payments under 30% of gross income. |
| Student loan | 0% (federal) / prime+1% (provincial) | Increasing earning potential. Canadian federal student loans are interest-free — pay provincial portions first. |
| Car loan | 5-9% | Only if essential for work and public transit isn't viable. Buy used when possible. |
| Investment loan (leverage) | Prime + 1-2% | Only for experienced investors who understand margin calls. Not recommended for most people. |
The test: if the debt enables an asset or income that exceeds its cost over time, it may be worth taking. If it funds consumption that's gone before the debt is paid off, it's not.
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