Your credit is important. It can impact your ability to own a home or purchase a car. This is everything you need to know about building your credit history in Canada.
Why are Canadians concerned about credit history? Because a good credit score can lead to home rentals, money-saving phone plans, and bank loans. A bad credit score can negatively impact all of these things and more. Unfortunately, having no credit score is just as terrible as having a bad credit score, so it is important to begin building your credit history as soon as you arrive in Canada. So, where do you start?
Your Credit and Credit History
First of all, having credit is a way to borrow money. Therefore, when you pay back the money to the lender (i.e. the bank), you have to add in the interest charges. This means that you will be paying back more money than you borrow.
Your credit history is composed of lenders, retailers, and financial institutions that reveal facts about the way you handle past credit. These results will impact who is willing to lend to you in the future.
About Your Credit Score
A credit score is made up of a three-digit number that is derived from your credit report. This clearly demonstrates how well you manage credit and how much of a risk it is to lend you money. In simpler terms, a credit score is a calculation that predicts your ability to pay off debts. Banks, landlords, etc. use this credit score to foresee whether or not you can maintain regular payments. As you can tell, having a good credit score here can work in your favour.
How To Build Your Credit History
The quickest and easiest way to establish a credit history is by obtaining a Canadian credit card and making regular payments.
Why Should You Get a Credit Card?
Using a Canadian credit card is the best way to build your credit history in Canada because it shows banks that you are capable of paying off any debts. For more information on this, read Credit and Credit Scores in Canada next.
In addition to building up your history, a credit card is a convenient way to shop and pay for services. It is usually required for online payments and sometimes credit card companies offer cashback or rewards for simply using the card. Moreover, there are instances when you can use a credit card as a means of identification.
Learning How To Pay Your Bills
Make regular payments on your credit card, but wait until you receive the bank statement first. If you pay the bill the same day you make the purchase, you will have to pay $0 at month’s end and that will not help you to build credit.
However, it is important that you have the money to pay your bills on time. It will negatively affect your credit if you do not have the money to pay back what you owe. Only spend what you can afford so you demonstrate good credit history.
Do Not Miss the Due Date
Most importantly, do not pay off your debts late. Pay your full due payment at the end of the month so you do not accrue interest. If you choose the minimum payment option, your debt will continue to accrue interest that you will have to pay later on. Do not waste your money on this!
In the end, it is beneficial to set up your credit history as early as you can. Building your credit history the right way can positively impact your ability to obtain a mortgage so you can buy a home or a car, receive a loan from the bank, and even save money on a phone plan. What are you waiting for?
*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.