Credit Building Guide

A credit score is a number that predicts a borrower’s ability to pay back a creditor or lender on time. In Canada, credit scores range from 300 to 900 with a poor credit score being anything below 600 and excellent being anything above 750. A low credit score indicates to potential lenders that you may be a risky borrower and could be more likely to miss a payment. On the other hand, a high credit score may indicate the exact opposite. A credit score is calculated using the information found in your credit report. Both credit bureaus have several different algorithms they use to calculate your credit score. This means you have multiple credit scores. Lenders and creditors typically only pull one version when verifying a credit application. Furthermore, the score you see when checking your credit may be different than the one a lender sees.

These are the programs that can help you build stronger credit:

What is a Credit Report?

A credit report is a file that includes information regarding your credit history. Lenders and creditors check your credit report to determine your creditworthiness. The better you look on file the more likely you are to be approved. A credit report includes data regarding four major categories: 

• Personal data: This includes your name, address, phone number, SIN, employment history, etc.
• Credit history: This includes information about all loans, credit cards, lines of credit, and all other forms of credit. Any missed payments, as well as payments made on time, are recorded here. 
• Inquiries: This includes information on the number of people who have been given permission to do a credit check on you. 
• Public Records: This includes information regarding any bankruptcies, consumer proposals, debt settlements, etc.

Who Checks Your Credit?

It isn’t just lenders and creditors that can check your credit, there are many other instances where you may have to undergo a credit check.

• If you need to renew a financial contract with a lender or creditor, they may require another credit check to determine if you are still creditworthy. 
• When looking for an apartment, landlords have a right to check your credit report before approving you.
• Potential employers may also conduct a credit check before offering you a job or promotion (not a common practice in all industries).
• Insurance providers may also perform a credit check to determine your risk level or likelihood of claiming insurance. 
• Before providing their service, utility and phone companies may require a credit check.

	Cost	Credit Score	Credit Report
	Free	Yes	Yes	Visit Site
	Free	Yes	Yes	Visit Site
	Free	Yes	Yes	-

How to Build a Healthy Credit Score

Building a healthy credit score may seem like a daunting task, but with knowledge, organization, and determination anyone can have good credit.

A Secured Credit Card

If you have bad credit, a secured credit card can be a more viable option than getting a regular credit card. A secured credit card is secured with a cash deposit, which is usually the same amount as the credit limit. Once the deposit is paid, you can use the secured credit card in the same way you would use a regular credit card. If your secured credit card provider reports your payments to the credit bureaus, it’s possible your credit health will improve. Just keep in mind that everyone’s credit profile is different and therefore will react differently. As for your deposit, you’d get it back once you close your account. 

	Annual Fee	Purchase Interest Rates	Min. Deposit
Secured Neo Mastercard	$5/monthly	– 19.99% – 29.99% – QC: 19.99% – 24.99%	$50
Secured Tims® Mastercard	$0	– 20.99% – 26.99% – QC: 20.99% – 24.99%	$50
Home Trust Secured Visa Card	0$ or $59	– 19.99% (no annual fee) – 14.90% (with annual fee)	$500
Vancity enviro™ Secured Visa* card	$0 – $395	11.25% or 19.50 %	$500

Become an Authorized User on a Family Member’s Credit Card

You may be able to build your credit by asking a family member with a strong credit history if they’d be willing to put you as an authorized user on their credit card. Doing so will transfer payments made on their credit card to your credit file. Of course, be sure that the credit card company reports activity to Canada’s credit bureaus. 

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Credit Building Program

If you have trouble accessing affordable credit due to past financial or credit mistakes, a credit building program could be the solution you need. We recommend KOHO, they have two great Credit Building Programs.

KOHO’s Credit Building Program is a credit-building line of credit program with a monthly subscription fee. All you need to do is make on-time payments every month. These payments are reported to a credit bureau which can help build your credit history.

KOHO’s Flexible Credit Building Program is a secured line of credit. Users will need to earmark $30 to $500 within their KOHO account to act as security for the line of credit. And cover a monthly service fee. Once the line of credit is active, you can use it to make purchases and then repay what is owed at the end of the month. These payments are reported to a credit bureau, which can help build a healthy credit history.

Credit Rehab Loan

A credit rehab savings loan is a savings and credit improvement program that is typically offered by community banks and credit unions. As you pay off the loan, a portion of your payments is saved in a GIC, which you will be able to access after you complete all your payments. Furthermore, each payment you make will be reported to the credit bureaus, which may help improve your credit.

Guarantor Loan

Having your parents or significant other be a guarantor when you apply for a credit product is a great way to increase your chances of getting approved. You’ll also increase your chances of being eligible for a more affordable interest rate or more favourable terms. 

Credit Builder Loan

If you’re struggling to rebuild your credit after a past financial misstep, a credit builder loan is a good option to consider. When you take out a credit builder loan, you’ll make monthly payments, similar to any other type of loan. Your payments will be reported to the credit bureau which has the potential to improve your credit. Your loan payments are saved in an account and once you’ve come to the end of your term, can you withdraw your money. Not only will you have worked at improving your credit, but you’ll have jumped-started your savings.

How to Build and Maintain Good Credit

Maintaining a good credit score can be easy when you know what affects it. Being aware of this is one of the most important and productive ways of keeping your credit in good standing. 

Using a credit card responsibly and paying it off on time

Paying your bills on time is one of the most significant factors that affect your credit. It is recommended that you never spend more than you can afford. Always make sure to budget and track your spending. This will ultimately lead to you making full on-time payments, which can increase your credit score.

Keep your credit utilization low

Ideally, you should not go over 30% of your credit limit. Spending more than 30% can impact your credit negatively, so it’s best to keep all your credit card balances below this ratio.

Paying all your bills on time 

Credit card issuers are not the only people who report your payment history to the credit bureaus. Lenders will report both on time and missed payments while phone providers and utility providers will report if you fall behind on your payments.

Keep your old credit accounts open

Unless you have a good reason for cancelling a credit account it’s best to keep them open as closing an account may affect your credit scores negatively. One of the many factors used in the calculation of a credit score is the total length of your credit history or how long you’ve been a credit user. Closing an old account will shorten your credit history and can affect the health of your credit. The longer you have an account open the better it looks to creditors. 

Don’t submit too many credit applications within a short period of time

Every hard credit check can bring your score down by a few points. As such, applying for too many credit products within a short period of time is not advisable. Moreover, too many credit checks can indicate to lenders that you’re in a desperate financial situation and could decrease your chances of approval. 

Monitor your credit score and report for errors and signs of fraud

It is recommended to check your credit report every 6 to 12 months. By monitoring your report you can catch any errors on file that affect your credit scores negatively like an account that doesn’t belong to you. You can also catch any signs of fraud which can cause serious financial and credit issues for you.

Financial Habits That Could be Ruining Your Credit

As mentioned there are many actions you can take to build and maintain your credit. Just the same, there are also many behaviours that can ruin your credit. 

Maxing out your credit cards

As previously mentioned, using more than 30% of your credit limit may hurt your credit, so maxing it out is far worse. Plus, lenders and banks typically see maxed-out credit cards as a sign that you have more debt than you can handle and thus, are more likely to reject you for any credit products you apply for.

Relying on credit to cover the cost of daily expenses

Though using credit to cover the cost of daily expenses isn’t bad itself, it can quickly affect your credit if not used carefully. Using it too often can leave you open to fraud, overspending, and large balances, all of which may negatively affect your credit.

Cosigning an account for someone who is irresponsible

An unfortunate way your credit may be affected is when you are trying to help out someone you care for. There are times when the person you cosign for ghosts you or stops making payments which may hurt your credit. It is imperative that when you cosign for someone, you understand the severity of the situation and realize that you are taking responsibility for this person if they cannot make the payments. 

Ignoring a bill that is past due

Ignoring your bills that are past due doesn’t make them go away, it just prolongs the inevitable. When a company tries to collect money from a client who is past due on their bill, they will call and send letters to try and get payment. However, if their attempts of collecting payment do not work, they will likely send the client’s account to a debt collection company. If the debt collector or creditor reports this to the credit bureaus, you will end up with a collections account on your credit report for about six years. A collections account on your credit report can affect the health of your credit which in turn may impact your future ability to get approved for credit products.

Making only your minimum payment on your credit card

Paying only the minimum on your credit card doesn’t directly affect your credit but continually doing so will, because your debt will increase as you continue to use your credit card. Thus, increasing your credit utilization ratio which as discussed is bad for credit. Moreover, by only paying the minimum, you not only take more time to pay off your debt but you also commit yourself to pay more on interest. 

Not using credit at all 

As scary as credit may seem with all the ways it can be affected negatively, choosing to hide from it isn’t the answer either. No credit, means lenders and banks have no way of judging if you are someone who is likely to default on payments or not. This may even affect apartment applications or even phone services you want as they typically do a credit check before approving you.

Frequently Asked Questions