Decades ago it was extremely tough to build a credit history because young people were unable to borrow money from lenders due to their lack of existing credit history. Young people were also unable to build any sort of credit history because they were not allowed to borrow.
Well, twenty odd years later the rules have changed drastically. Credit card companies now offer up and give almost anyone with a valid name a credit account. It has become pretty easy in recent times to build credit history as a minor or immigrant; however, in order to build your credit history effectively it is important for you to understand how to boost your credit rating. Should you choose to follow these guidelines, building a good credit score will save you money for the rest of your life.
First, if you are new to Canada and have not yet applied for a credit card it’s time to do so. Now, one mistake you don’t want to make right out of the gates is applying for too many different accounts. When a lender sees your application for credit they immediately check up on your existing credit score. If you have no history of credit and the only thing that shows up on your account is that you have applied for five different credit accounts the lender is less likely to approve you. Even though you have no existing credit to the lender it looks as though you are scrambling for money and trying to pick up any additional credit you can. This situation is risky for a lender and thus they are less inclined to approve your application.
Now that you are ready to apply for one credit card you need to decide the amount of credit you think that you will need on a monthly basis. Make sure the amount is small enough that you can afford it without worries, then go ahead and deposit that amount in the bank as collateral. This step is not necessary, but to a lender it looks very favorable and it will heighten your chance of acceptance. If you are applying for a secure credit card though you will be required to deposit that amount in the bank anyways as it will be a stipulation of the credit contract.
After you receive your card in the mail it’s now time to start building your credit. In order to strengthen your credit score you have to be focused on two main guidelines:
– Borrow under 30% of your credit limit
– Make all payments on time
It’s very important to keep the total amount you owe under 30% of your entire credit limit because if it goes over it will lower your credit score. The second guideline is easy to understand but can sometimes be a little tricky. Lenders will look very closely at your bill payment habits to see if you consolidate your debt on time each month. If you show the lender that you have the ability to make all your payments on time it is a strong indicator that even if you run into a few problems you will most likely pay the money back.
Also, you have to understand how the lender makes money. If you complete a transaction on your credit account then go right to the bank and pay it off you are no use to the lender. By paying your bill right away you pay little to no interest and thus the credit company makes no money on you. To keep your credit score rising you should continue to borrow money, but pay it off in full once a month.
If your history shows that you make all your monthly payments on time then you are well on your way to establishing a strong credit score.