Question

1. How can you build a credit history in Canada? Why is managing a good credit score so important in your personal finances?

Answer 1

How can you build a credit history in Canada?

Here are a few other tips to help you build solid credit from the ground up:

• Open a regular or high-interest savings account.

If you show a bank or lending institution that you can save money, they may trust you with small lines of credit or credit cards. The Tax-Free Savings Account is a great way to take advantage of some tax-free savings if you haven’t been employed in Canada.

• Start with an overdraft.

An overdraft is a limited permission to spend more than you have in the bank. It’s essentially a small loan when you need extra money; it gets paid back as soon as you make a deposit. You shouldn’t use this excessively, but using it occasionally shows you can be trusted to pay what you owe.

• Apply for a secured card.

These cards are offered to those with no credit or with bad credit to help them establish a credit history. It’s the same as a regular credit card except that the credit limit is set by how much money you can put down. These cards are a little easier to get because the company isn’t taking any risks. But, of course, you still have to be responsible and pay the bill.

• Accept offers of credit through banks.

If your bank is promoting its lines of credit, you should try to get a small credit line. If approved, your line of credit should be used regularly, but carefully, to establish consistency and trustworthiness.

• Find a co-signer.

Although it is a great way to show you can be trusted with credit, if you default on payments, you aren’t the only one whose credit will suffer — your co-signer’s will, too. Usually, the co-signer must have a strong credit history. If you don’t have any family or close friends, you may not have much luck with this option.

Why is managing a good credit score so important in your personal finances?

Your credit scores determine a lot more than the loans you can get and the interest rates you pay. Insurers use credit scores to set premiums for auto and homeowners coverage. Landlords use them to decide who gets to rent their apartments. Credit scores determine who gets the best cell phone plans and who has to make bigger deposits to get utilities.

Credit scores are a financial tool, in other words, but whether they’re a lever or a hammer depends on how good they are.