Building good credit

You may not realize it, but building a credit history and maintaining a good credit rating is very important.

Your overall credit rating helps banks decide whether to open an account for you, issue you a credit card or loan you money. It also helps them to decide how much interest to charge you. Just as a good driving record can mean better insurance rates, a good credit rating can mean better interest rates on a loan or mortgage.

Here are some ways you can manage your credit history and improve your credit.

Your credit history

Your credit history is a record of all your credit-related activities, and it’s kept on file at central agencies Equifax Canada and TransUnion. When you apply for credit—such as a credit card or a car loan—the bank or credit union requests a copy of your credit history to help them decide whether they are comfortable lending you money.

Your credit history includes:

  • The types of credit you’ve applied for in the past
  • The types of credit you hold (credit cards, loans, mortgages)
  • How long you’ve held each type of credit
  • How much credit you have used and what you have available
  • The amount your monthly debts cost you
  • Whether you pay your bills and repay loans on time
  • Whether you’ve filed for bankruptcy

Your credit rating

Your overall credit rating is calculated based on your previous payment history, your current debt levels, the length of your credit history, the frequency of new credit enquiries and the types of credit you currently hold.

6 tips for improving your credit rating

Start building your credit history. Having no credit history can be as challenging as having bad credit history. Applying for and using a credit card responsibly is one of the simplest ways to start building your credit history.

Always pay bills on time. Paying your bills late will damage your credit rating. Plus, you’ll end up paying extra interest and late fees. Try to pay your bills in full by the due date, and if you can’t pay your credit card bill in full, at least make the minimum payment.

Don’t “spend” all the credit given to you. Lenders want to know that you can manage the money they have given you. Spending all of it—utilizing the entire credit limit—only tells the lender that you may not be able to live within your means.

Don’t apply too often. When you apply for credit cards and other forms of credit too frequently, it can lower your credit rating—even if you don’t use the credit you applied for. Paying for a purchase on monthly installments, applying for store credit cards, and getting a cell phone contract all require credit applications, so it can add up quickly.

Check your credit yearly. It is possible that there may be errors in your credit report. By requesting a credit report once a year from one of the central agencies, you can make sure your credit history is accurate and that you’re not the victim of identity theft. To obtain your credit report at no charge, contact Equifax Canada at 1-800-465-7166 or TransUnion at 1-800-663-9980. Or you can go directly to their websites.

Get credit counselling. If you need help to manage your debt or improve your credit rating, a professional credit counsellor can help you get your finances in order. Non-profit services such as those offered through the Credit Counselling Society are generally free.

If you’re new to Canada… Canada’s credit-reporting agencies only collect information from Canadian sources, so if you’re new to Canada, you’ll need to start rebuilding your credit history. Some financial institutions may be willing to recognize the credit history you built outside of Canada, so make sure to ask them about the possibility.