Getting credit history in your new country is important, but more importantly, do you know how to maintain a good credit report in Canada? We’ll share tips to help you maintain a healthy credit report after you have taken great care to build it. Because with a well-maintained credit report, you can save money and have more financial freedom.
The financial decisions you make when you arrive in Canada can have a huge impact on your credit history. And, the concept of credit can sometimes lead to a debate about how it can help, or hurt you when you are building your credit history.
On one hand, credit can be a fantastic tool to help you:
- get a loan or a mortgage
- save on credit card and loan interest rates
- rent a home, and
- obtain certain jobs.
On the other hand, if poorly managed, credit can haunt you for many years and make you miss out on financial opportunities. Creditors can run a credit check on you to assess if you are a low-risk or a high-risk borrower. And, they will decide to grant or deny you a loan or charge you a higher interest rate.
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How your credit history is used in Canada
Your credit history is based on how you pay your bills. For example, do you consistently pay:
- on time
- in full
- the minimum amount due, or
- after the due date.
Missing payments can really damage your credit score and make it difficult to get approved for a credit card or a future loan such as a car loan, or mortgage.
Based on your history, landlords may deny you housing. In addition, some employers may conduct a credit check before they hire you. For example, if you are applying for a job that involves access to money or sensitive financial information, an employer will want a credit check to minimize the risk of theft or fraud.
Your credit history speaks volumes to lenders about what kind of risks they take when they agree to lend you money. It takes a long time to build a credit history. Yet, it’s very easy to sabotage and it takes even longer to rebuild.
So, can you do without credit? Yes. But, should you try to do without it? No. Because without credit, it will be difficult to improve your living standards, at the very least, not as quickly as you would like. And, when it comes to making major purchases such as buying your first home in Canada, a strong credit report is essential.
What is a good credit score?
Your credit score can fall between a range of 300 – 900. Generally, and depending on the credit score model that your financial institute is using a good score is greater than 680. As a benchmark, to get a mortgage to buy a house in Canada, you need a credit score between 600 – 700. If your credit score is lower than 600, you will want to take steps to increase your credit score.
What’s in your credit report?
Credit reporting agencies such as Equifax and TransUnion Canada record your credit history. Your credit report will contain information on your:
- credit accounts
- certain bills (for example, outstanding cell phone bills can be listed on your credit report)
- collections items (for example, if an outstanding debt is sent to a collections agency), and
- legal items (for example, if a court order is issued against you for an outstanding debt).
Collections items stay on your credit report for six years; legal items, for ten years. So it’s critical to practice good financial habits so you don’t jeopardize your credit.
Five tips to maintain a good credit report
Tip 1: Take advantage of your fresh start in Canada to establish a good credit history
Get a credit card or two, and use them, but use them sensibly. It’s best to start with only one until you are financially comfortable enough to afford more. Pay off your balance each month, to show potential lenders your reliability.
Paying in full each month will also reduce the amount of interest you pay. And with the average credit card interest rate at approximately 19%, any balance on your credit card can become very expensive.
Using your credit card for cash advances is even more expensive. Typically, the interest rate is higher and you pay interest from the date of the cash advance. There is no grace period like there is for a regular credit card purchase.
Tip 2: Read the small print on cancellation fees and penalties
On top of paying your monthly bills and loan installments on time, you need to be careful when you sign up for services such as cable, telephone, internet, gym subscriptions, and other monthly subscriptions. Check the cancellation fees and deadlines when you sign up for such services. Otherwise, these fees can be high.
Be sure to ask questions about your contract if there is anything that you do not clearly understand.
Tip 3: Keep track of your utility changes
When you move, don’t forget to cancel or transfer your services and utilities. Because, sometimes final bills end up in collections out of sheer neglect, and from collections, they land on your credit report for the next six years. Always keep track when you make such changes, by recording the date, the names of the agents you speak to, and your case number. Or, if you are given a receipt, be sure to hang on to it to prove that you canceled the service.
Tip 4: Negotiate a payment schedule if you hit a rough patch
If you hit a rough patch, such as an extended period of unemployment, do not be complacent about your credit. Call your creditors and negotiate your monthly payments. They will likely be willing to help you because sending outstanding accounts to collections would cost them more money. Cancel or suspend services you can do without, rather than have the bills rack up.
Tip 5: Use readily available services to track your own credit history
Most banks including Scotiabank offer account holders this facility. Alternatively, use free services like Credit Karma to monitor your credit. If you notice outstanding payments that you have paid off on your report you should inform the reporting agency in writing so that this may be removed.
All in all, credit is a rather sensitive tool, but you will definitely need it. The key is to manage credit to your advantage. Even if some aspects seem confusing, keep in mind that it’s always easier to prevent credit damage than fix it later. And when you maintain a good credit report in Canada, you can gain many benefits and reduce your financial stress.