Building a good credit history

At some point in your life you will probably want to borrow money from a financial institution. You might want a loan for your first car, or a credit card to make travel reservations or online purchases. There’s a good chance that you’ll want to own your own home someday and for that, you’ll likely need a mortgage.

It’s important to establish good credit early on because lenders take this into consideration when deciding whether to loan you money. Your credit history is a record of funds you’ve borrowed and paid off over time.

As part of the credit approval process, a lender will look at your credit history to see how you’ve handled your debts in the past. It’s worth noting that the best rates go to those with the best credit.

If you’re a student, a recent graduate, or new to Canada, you may not have a credit history. This is because you haven’t applied and been approved for any type of credit in the past.

Start with a credit card

A good place to start building credit is with a credit card. Many lenders have credit cards designed with students and newcomers in mind, often with limits as low as $500-$1000. In some instances a lender will take a security deposit equal to the card limit, as security.

• Be mindful not to apply for multiple cards at once. Every time you apply for credit, a “credit check” is made on your credit file. This can have a negative impact on your credit score because it makes you look like a “credit seeker.”
• Many credit cards come with varying features, interest rates and fees, so do your research to determine which card is the right fit for you.
• Keep in mind that retailer cards usually charge much higher interest rates than financial institutions like Meridian. Learn more about Meridian credit cards.
• Once you have a credit card, make sure to pay your bill on time, every month. When you’re building your credit history, it’s a good idea to make a purchase each month and pay your card off in full whenever possible.
• Avoid making cash advances on your credit card. The interest rate on cash advances is normally much higher than the rate for regular purchases. If you need to borrow funds, a line of credit is a better option.

Pay attention to your phone and utility bills

You may not think of cell phone and utility bills as “credit” but not paying them on time can affect your credit history. Phone and utility companies do not report on your payment history but if your accounts go delinquent, this will show up on your credit report, and affect your score.

• Pay your bills on time, every month, to keep your accounts in good standing
• Set up direct payments from your bank account to avoid accidental missed payments

Using credit responsibly is the best way to keep your credit history in good standing. This means you need to make your payments on time, every month.

• Only borrow what you can afford to pay back: Just because you qualify for a certain amount of credit, doesn’t mean you should use the full amount. Making your payments in full, on time, will prove to a lender that you’re not a risk.
• Don’t max out your credit cards: keep your balance to a small percentage of your limit.
• Keep the number of cards to a minimum: too much credit spread out over multiple cards can become difficult to track. This could lead to missed payments and damaged credit.
• Avoid late payments: each late payment will be reflected in your credit history.