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Credit and Credit Scores in Canada

Written by CNN Team

Why do you need to be concerned about your credit score in Canada? Because a bad credit score can create limitations for you.

Why are Canadians concerned about their credit and credit scores? Well, a good credit score can lead to bank loans, places to live, and car rentals. A bad credit score can negatively impact all of these and more. So, if you are new to Canada, prepare to build up your credit and credit score straightaway. It will make the transition to your new home much smoother.

What is a Credit Score?

Simply speaking, a credit score is a calculation that determines your ability to pay debts. Therefore, landlords, banks, and others use your credit score to ascertain whether you will be able to keep up with their payments. 

A credit score is comprised of a three-digit number that is created from the information in your credit report. It offers a rundown of how well you manage credit, which tells people how risky it is to lend you money. 

What is a Credit Report?

This is a summary of your credit history. It begins when you borrow money or apply for credit for the very first time (ex. getting a credit card and using it). The credit report contains information about your accounts and it is sent to the credit bureaus or credit reporting agencies.  

How is a Credit Score Calculated?

A formula is used on your credit report to determine your score. Basically, you gain points for using credit responsibly and you lose points when you have trouble managing it. Lenders and credit bureaus do not share actual formulas with the public, so it is difficult to know exactly how much your credit score can change. However, it is important to note that there are factors that can affect your credit score such as how long you have had credit, if you carry a balance on your credit cards, if you miss payments, the type of credit you are using, etc. 

Most of the time, lenders have their own guidelines regarding the minimum credit score required to lend out money. 

How to Build a Credit Score

Firstly, get a credit card in Canada because using one is the best way to build your credit score. This demonstrates to banks that you are capable of paying off any debts that you accumulate. If you are not sure where to get one, then read Credit Cards for Newcomers for an in-depth look at your options. 

Secondly, when you are paying off your credit card bills, wait until you receive the bank statement. Do not pay off the bill the same day you make a purchase because then you will have $0 due at month’s end – this will not help you to build any credit history. 

Thirdly, make sure that you have the money to pay off your bills and that you pay them on time. Not paying your bills will negatively affect your credit score. Which will earn you a bad credit score. So before you use your credit card to buy new clothes, remember that you need to have the money by the end of the month to afford it.

Fourthly, it is important to pay your full due payment. This will not affect your credit score. However, if you choose to pay the minimum payment option, you will have accrued interest that you are required to pay later on. Don’t spend extra money if it isn’t necessary. 

Quick Recap

Building up your credit and credit scores in Canada can be highly beneficial. This will affect your ability to rent a car, rent an apartment, obtain a phone plan, get a loan from the bank, and so much more. Someone who does not have a credit score in Canada can find these things just as difficult as another person who has a bad credit score. Therefore, don’t wait to build up your credit when you first arrive. Start the process immediately.


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