Establishing a positive credit history now can be beneficial down the road when you want to qualify for an auto loan or a mortgage. This may be especially true if you’re new to Canada, or if you’re a recent college grad and are thinking about big purchases. Here are 5 tips on how to build credit.
Good credit takes time to build. Overdoing it at first by applying for numerous credit cards all at once might damage your credit scores right from the start. Applying for credit cards, bank loans or a new mobile phone account will all produce hard inquiries. A lot of hard credit inquiries indicate that you may be taking on too much debt and will have a lot of repayment responsibility and risk. Instead, apply for just one manageable card.
Get a Student Credit Card
Many financial institutions offer credit cards designed especially for students, which are ideal for teaching financial responsibility. These cards tend to have lower credit limits and may even start off with lower introductory interest rates. Reward points may also be part of the deal so you can earn as you spend. These cards may include perks like cash back or money off purchases like entertainment or food. You may also be able to set up text or email alerts informing you of your balance or that your upcoming bill is due.
Secured Credit Card
A secured credit card is an effective way to build credit if you are unable to qualify for a regular credit card or a student card. Secured cards require a deposit with the lender. The amount of money that you put down becomes the credit line for the account, so if you deposit $500, your credit limit for your card will also be $500. Bills are paid monthly, just like with an unsecured card. If you default on your payments, the lender will use your security deposit to pay off your balance. The bank will usually release the security deposit after a period of time if you’ve paid your bill on time and have shown that you’re financially responsible.
Keep Balances Low
Maxing out your credit cards can negatively affect your credit scores. Light use of your cards is best. The less you charge, the better. The balance shown on your credit report — which is usually the balance of your last statement — affects your overall score, so maintaining a lower balance can help you build credit.
Pay on Time
Your payment history is one of the most influential factors when it comes to creating a positive financial history. Making credit card payments on time is crucial to building credit, but don’t forget your other bills. It’s just as important to make sure all your monthly bills are paid within 30 days of their due dates, such as electric, cable and phone bills. Defaulted bills and those that have been sent to collections can remain on your credit report for up to seven years.