How to Establish & Get Credit in Canada | Credit Education
If you’re applying for credit for the first time, you might find it hard to get a credit card or loan. This is because you don’t yet have a credit history: a record of how you’ve managed your debts. Without this information, it’s tough for lenders to trust you with their money.
5 Ways to Establish Credit or Get a Credit Card
So how can you get a good credit history and credit score if it seems like no one wants to lend you money? Fortunately, there are some options available. Here are 5 things you can do to start on the path towards a strong credit rating:
Retail Credit Cards
To attract customers, many stores offer their own credit cards. They are not only easier to get than cards from banks, but also usually have discounts and bonuses on shopping. However, they also tend to have high interest rates, low credit limits, and restrictions such as not being able to use them outside the stores. If you decide to apply for one of these cards as part of a financing offer, be careful of pressures to overspend.
If you attend a college or university, you have the option of getting a student credit card. These will often have special perks such as no annual fee or a limited credit check because they know students are often applying for credit for the first time. While they tend to have low credit limits, you don’t need a high limit to build a good credit rating. Make sure you know what happens to the card when you graduate!
Cell Phone on Contract
You don’t need a credit card to build credit. Signing up for a cell phone on contract is one of the fastest ways to build a credit rating – but it’s an even faster way to destroy your credit score if you don’t make all of your payments on time and in full every single month. Only get a phone plan that you can afford and budget carefully for your payments.
Secured Credit Cards
A secured credit card is one of the best ways to build credit or even fix a bad credit score. After paying a deposit equal to your credit limit, you can use it like a normal credit card. The difference is that if you can’t pay back your balance, the lender will keep your deposit and cancel your card. The lower risk for creditors makes secured cards easier to get, but some do come with fees and stipulations you might not see with unrestricted accounts. Plan to have the secured card for at least a year – and be very sure to make all of your payments on time. It’s also best if you don’t keep a balance owing that is higher than about 50% of the limit on the card. Once you’ve improved your credit score you can apply for a traditional credit card elsewhere, or the lender you’re currently with might offer to switch you over to one of their unsecured cards as well.
Co-signed Cards & Loans
You might not have a credit history, but you probably know someone who does. A co-signer will let you get a credit card or loan that you normally wouldn’t qualify for, giving you a chance to build credit. However, the co-signer is 100% responsible for any debt that you can’t pay back. Protect your relationships by only getting a co-signer when you’re confident they won’t regret it.
Building Credit and Good Habits Takes Time
After all the work you put in to meet the qualifications for your first credit card, you might feel disappointed when you get one with a low credit limit or other terms and conditions that feel restrictive. Think of it instead as a chance to prove yourself. If you pay your balances on time, then you’re showing lenders that they can trust you with their money. You’re also showing yourself that you can use your credit responsibly.
To establish a satisfactory credit score, you usually only need to have one card or loan for about a year. Don’t worry about your credit limit. What matters most is that you make your payments on time every month without fail and don’t overuse it. If you show that you can be responsible with the credit you’ve been granted, then within a year or so, your credit score may be high enough to qualify for a better credit card, a car loan or maybe even a mortgage. But keep in mind that credit scores change often. Those you borrow money from will report how you use your credit every month. So once you’ve gotten the credit rating you want, you then need to keep it strong. There’s a lot in it for you if you have a good credit rating!