Are you aware of what an important role your credit can play in your life? No wonder why so many Canadians pay a huge attention to their credit history and try to build credit. Others, on the contrary, don’t care that much until the time they face certain consequences.
Whatever they are going to say, the fact remains: your credit allows the lender to assess possible financial risks when lending you money, services or goods. In other words, the financial world considers a credit history a certain measure to make sure the borrower is a reliable payer. The better your credit is, the more money you’ll be allowed to borrow.
Although, not always does your credit matter as much as it would in banks or credit unions. For instance, those services providing online loans in Canada give everyone a chance to obtain a fast loan even if their credit history is not so perfect.
First Financial Steps In Canada
Whether you are just making your first step into the real life of a Canadian adult or starting a new life in Canada as an immigrant, here is what you need to know about building a good credit. The process is not fast. Be prepared to spend at least the first couple of years to develop a satisfying credit history and score.
The first thing you should do is (duh!) open both a chequing and savings account at one of the Canadian banks or credit unions.
Having both is not only important for your future credit history but is quite convenient in use. Note that if you are an immigrant, you won’t be able to open an account in any of the credit unions. Those are strictly for permanent residents and citizens of Canada. Banks, however, do not have such restrictions.
- Purchase a cell phone plan from a local provider. The thing is, payments for your phone bills are also recorded in your credit history. If you’re doing ones on-time and regularly, the score is likely to increase. The choices for your cell phone plan are huge and to everyone’s budget.
- Get a credit card. Even if your initial credit card balance is only CAN $500, it will be possible to gradually increase this limit in the future as your trustworthiness as a client will start to grow. Most importantly, you should perform at least a minimal activity with your card. Even a couple of purchases per month made with your credit card and paying the debt in time will be enough.
Your goal is to have at least CAN $2,000 available on one or two credit cards and at least 2 years of active use. Bank or credit union choose mostly reliable applicants with a solid history.
8 Tips to Build Credit
- You need to use a credit card! The more often you use – the better. If you receive a credit card and not use it, your credit rating will likely to keep decreasing by several points every month.
- Pay off your credit card debt. At best, you pay off the borrowed sum completely, but even a minimum monthly payment will work in case you cannot afford to cover the debt at once.
- Don’t check your credit history too often. Of course, when it comes to Soft Pull check, it does not affect your credit rating. But when it comes to Hard Pull checks, they significantly reduce your credit rating. Experts say you shouldn’t do more than 2-3 of those per year.
- Obtaining a secured loan can bring your credit score up. Yes, there is a risk of putting your property or a vehicle as a collateral for your secured loan. But at the same time, it’s a good chance to improve your rating significantly.
- Indirectly improve your credit history. Open credit cards from your local shops, supermarkets, gas stations – they also contribute to improving your credit history.
- Do not close old accounts, even if you don’t use them anymore. If you close an old credit card, the total duration of your credit history will decrease. And the shorter the credit history – the lower the rating. So think twice before deciding whether to say goodbye to one of your old credit card accounts.
- Try to spend less of your credit limit. If you are a respectable customer, banks decide for themselves to increase your credit line. Nonetheless, it’s fine if you ask the bank about increasing your credit limit yourself. The one thing you must remember for sure is not to use all the available amount on your credit card. Next time you are going to plan your trip, make sure to have some cash instead of pushing your credit limit!
- Finally, do not vouch for other people. Perhaps, your friend might ask you to become a guarantor for his or her loan. Helping friends indeed is f course necessary, but nobody can tell what might happen in the nearest future. What if the person starts having financial difficulties and will not be able to make the loan payments? Be ready that this will hurt you and your credit rating as well.
If you follow these tips, it will help you build credit so that your lenders won’t have any doubts about your trustworthiness. All you need it to follow these 8 simple recommendations.