The Quick Beginner's Guide to Building Credit in Canada
Buying a house, leasing a car, renting an apartment, applying for a job, getting a cell phone; what do all of these things have in common? Adulthood, yes. But they also all require a five letter word that can cause some to run screaming in the other direction; credit.
Simply put, your credit is your reputation as a borrower based on your borrowing history. Lenders use this information to determine whether or not to loan you money and how much based on how likely you are to repay the loan. If your credit rating is not great, a lender may still be willing to loan you some finances but expect the borrowing rate to be very high.
Credit doesn’t need to be the big bad monster hiding under the bed and looming over you while you’re sleeping. When you’re disciplined, have a good financial foundation and make smart, informed money decisions that keep you living within your means, credit is the big friendly giant that helps get the keys to a brand new home in your hands. This is why it’s important to start out your relationship with credit on a good foot.
If you have no credit history and need an introduction to the big friendly giant there are a few simple ways to get started:
1) Apply for a credit card.
Many big banks offer credit cards with low limits that can be great for building your credit. Use it to buy gas, groceries, or other regular planned purchases while you’re first getting comfortable. Remember, simply getting a credit card won’t build you credit; you have to use it and make payments on the balance. Get in the habit right from the start of paying off your balance in full each month to avoid interest charges and protect your hard-earned money.
2) Get a cell phone.
Some mobile carriers will report your payment history if you have a post-paid plan. Pre-paid plans will not help build your credit score. As with a credit card, paying the full bill amount on time is important.
3) Put utility bills in your name.
Similar to credit cards and cell phones, having a utility bill under your name and paying it off in full and on-time will build your credit score. This generally includes things like water, electricity and heating.
When first starting out it can seem scary to owe lenders money but accumulating loaned amounts and paying them off on time is the only way to actually build credit. To ensure you don’t get into debt while building credit, save up some money in advance of accumulating credit card, phone or utility bills so you are able to pay off the balance right away. Start small while getting used to this idea and make yourself feel at ease by setting up automatic payments, scheduling reminders a few days before payments are due and checking your balance regularly.
Tip: do not borrow more than you can afford to pay back. Try to always spend less than you earn.
Go into your relationship with credit with confidence and a solid plan and you’re sure to be friends in no time.