Taking out a loan or credit product typically requires that you have a credit history. Not only that, but sometimes getting a job, renting an apartment, or even taking out an insurance policy may sometimes require credit. Given how influential your credit profile is on several aspects of life, it’s wise to build a healthy credit score.
Key Points
- Your credit history plays a role in your ability to access various credit products, like car loans, personal loans, and credit cards.
- If you don’t have a credit history, there are products available that are more easily accessible, like secured credit cards and secured loans.
- Once you have access to credit products, make sure to use them responsibly to build a healthy credit score.
What Is Credit History?
Your credit history tells the story of how you manage your credit accounts, like loans and credit cards. All the credit decisions you make — both positive and negative — determine the health of your credit history.
The information that contributes to your credit history is recorded in your credit reports, of which you have two: one from Equifax and one from TransUnion. Then, the information stored in your credit reports is used to calculate your credit scores.
Your credit history is a common factor in calculating your credit scores, so building a positive credit history is important.
How To Build Your Credit History In Canada
Your payment history and the time you keep your credit accounts open are two major ways to build a history of credit.
- Credit History Length – The amount of time you keep your credit accounts open can have a big impact on your credit scores. Opening and maintaining your credit accounts in good standing is a good way to build your credit history. Generally speaking, the longer you have your credit accounts open, the better it is for your credit.
- Payment History – Both your missed and on-time credit account payments will be reported to the credit bureau. As such, making full and on-time payments is essential in building a positive payment history.
Ways To Build Your Credit History
Whether you’re new to Canada or a young adult looking to start from the ground up, building a credit history can seem like a daunting task. But it doesn’t have to be. Building a credit history simply takes time and a few healthy habits. Here are some ways to help you get started:
Use A Credit Card
In order to build your credit history and payment history, you’ll need to actively use and pay off your credit card. While you may be hesitant to create debt, making small occasional purchases and paying them off can help build your payment history, which may positively impact your credit.
Get A Secured Credit Card
If you’re unable to qualify for a regular credit card, a secured credit card is a great option. Secured credit cards have very few requirements and you’re usually guaranteed approval if you can make the minimum security deposit. Payments are reported to the credit bureau(s) and can help you build a positive credit and payment history.
Become An Authorized User
If you’re unable to qualify for a credit card on your own, you can also become an authorized user on someone else’s credit card. This will link you to the primary owner’s credit card and you’ll be given a credit card that you can use to make purchases. However, you will not be responsible for any payments, only the primary owner can make payments.
This may help build your credit history if the credit card company reports the payment information to the credit bureaus for both the primary and the authorized user. Before becoming an authorized user, contact the credit card company to ensure they do report information about the authorized user. If they do not, then doing this will not help build your credit history.
Secured Loan
A loan that is secured by an asset like a car or house is called a secured loan. These types of loans typically come with lower interest rates and in some cases allow you to borrow more money.
Offering an asset can also help you secure a loan when you’re unable to with your current finances. However, it’s important to remember that you can lose your asset if you’re unable to make your payments. That said, full on-time payments on your secured loan can help build your credit history.
Use A Co-Signer To Get A Loan
Getting a co-signer can not only help you qualify for a loan, but you can also access lower interest rates. That’s because a co-signer is someone who agrees to take responsibility for your loan in the event that you cannot make your payments. Once your co-signer helps you gain access to a loan, you may be able to build your credit history by making on-time payments.
Have Your Rent Payments Reported
Generally speaking, rent payments are not reported to the credit bureaus, in which case they’re not used to calculate your credit score. However, there is still a way to use your rent payments to build credit.
To do this, you’ll need to use a rent reporting service, like the Landlord Credit Bureau (LCB). This credit reporting agency reports rent payments to Equifax. So, if you make timely rent payments, you can build good credit over time.
Tips To Help You Build Your Credit History
Keep in mind that everyone’s credit history develops at a different pace. It depends on a variety of factors, including the types of credit accounts you open, how long you keep them open, and how responsible you are with your payments.
To help you get started, here are a few steps you can take
1. Get Credit
The first step you need to take is to apply for credit. The thing is, however, that a credit history is typically required to get credit. So, you may find it difficult to take out a traditional credit card if you have not had enough time to develop a credit profile in Canada. In this case, a secured credit card may be a better option, as mentioned above.
2. Use Your Credit Responsibly
For some people, accessing credit is easy; it’s using it responsibly that can be a challenge. While having a credit history is important, having a positive credit history, in particular, is ideal. A positive credit history typically results in more attractive credit reports and scores.
One of the most important ways you can help build a positive payment history is by paying off all your bills and debts on time. Lenders and creditors like this and will see you as a more trustworthy borrower. This minimizes the lender’s risk, and therefore increases your chances of getting credit at lower interest rates.
3. Be Aware Of What You Owe
It’s best to keep track of how much you owe so you can avoid overspending and missing any payments.
When using your credit cards, avoid maxing out your available credit. Keeping your credit utilization low may help improve your credit score. Ideally, you should keep your credit card expenditures to no more than 30% of your credit limit. So, if your credit limit is $10,000, for instance, try to keep your spending to less than $3,000 per billing cycle.
You’ll also want to avoid always making minimum credit card payments. While making the minimum payment may help you ensure on-time payments without having to cover the full balance, you’ll be racking up your debt if you continue this cycle. Plus, you’ll be incurring interest on the remaining balance.
Moreover, if you continue to use your card while making the minimum payment only, you’ll likely be increasing your credit utilization ratio, which may negatively impact your credit.
4. Avoid Applying For Too Much Credit
- Only Apply For Credit When You Need It. In general, it is recommended that you only apply for credit when you actually need it. Too many hard inquiries within a short period of time can cause lenders to believe you are facing financial difficulties or are taking on more debt than you can handle.
- Exceptions When Applying. There are exceptions to this rule, however. When applying for a car loan or a mortgage, you don’t have to worry about multiple credit checks. Depending on the credit score model, any inquiries made between about 7 – 45 days for a car loan or mortgage will be considered as one inquiry.
5. Let Your Accounts Age
How long your credit accounts have been open is a common factor used to calculate your credit scores. As such, it’s important not to open or cancel multiple credit cards without good reason.
What Is Considered Good Credit?
Once you start building your credit history from the ground up, you should aim to achieve a good credit score. In Canada, credit scores range from 300 to 900 and are rated as follows:
| Credit Score Rating | Credit Score Range |
| Excellent | 760+ |
| Very Good | 725–759 |
| Good | 660–724 |
| Fair | 560–659 |
| Poor | 300–559 |
Based on this chart, a ‘good’ credit score is anything that falls within the range of 660 to 724. With this score, you should be able to access most credit products from traditional lenders. But to get the lowest interest rates and highest loan amounts and credit limits, getting your score even higher is best.
Bottom Line
Now that you know how to get started building a credit history, it’s time to get working. Find the best credit card for you, make your payments on time, develop good credit habits, and be patient, and over time you should be able to build a healthy Canadian credit history.
