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How to Build Credit History in Canada

Sandra MacGregor

Oct 14, 2021 10 min read

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Building Credit History in Canada
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    Many people know that credit history is an important factor when it comes to building up a strong credit score, but few really understand how to build a credit history. This is an especially important issue for younger Canadians just starting out with their first credit card and newcomer immigrants to the country. Here are some tips and steps you can take to build up a strong Canadian credit history.  

    Not sure what your credit history looks like?

    You can use Borrowell to get your credit score for free and see what your credit history looks like on your Equifax credit report. It only takes 3 minutes, and no credit card required.

    Check Your Credit Score

    Apply for an unsecured credit card

    Using a credit card is one of the best ways to quickly start to build up a Canadian credit history and a good credit score. That’s because every month, your credit card provider will report your credit card balance and payments to Canada’s two credit bureaus: Equifax and TransUnion. 

    Every time you use your card to pay for regular bills and expenses and then pay off your credit card balance on time and in full, you’re helping to give your credit score a boost. 

    Unfortunately, it can be difficult for a newcomer to Canada or someone with no credit history to get an unsecured credit card. Credit card providers may have strict requirements about what credit score or minimum yearly income an applicant needs to successfully apply for an unsecured credit card. 

    The good news is, however, that there are some banks and credit card providers in Canada that have special packages or credit cards designed specifically for students and newcomers where no credit history is required to apply. Aim to apply to those kinds of credit cards first if you don’t have a long Canadian credit history.

    Sign up for Borrowell's Credit Builder

    Credit Builder is a $240 secured installment loan with a 36-month term.

    All payments (including missed payments) are reported to Equifax and TransUnion. Positive payments reported to the credit bureaus help you build credit, which is an important factor in qualifying for lower interest rates and better offers on credit cards, mortgages, loans and more. At the end of 36 months, your total savings of $240 will be directly deposited into your bank account.

    Use a co-signer

    Paying off a loan can also help you build credit history, but you may have difficulty getting approved by lenders if you have no credit history. If you are having a hard time getting a secured loan with no credit score or credit history, you may want to consider getting a co-signer. 

    A co-signer is someone who guarantees they will pay off your debt if you fail to do so. Normally they will need to have a good credit score to guarantee a loan. Generally speaking, using a co-signer should be done cautiously, because it can be a huge burden to the person who acts as your co-signer. The co-signer essentially becomes a secondary borrower, and if you don’t make all your debt payments, not only would your co-signer be responsible for making payments, but their credit score could also be negatively affected.

    Getting a co-signer may be an option worth considering if you’re looking for a car loan or personal loan. In Canada, unfortunately, there are not many financial institutions that will accept co-signers for credit cards. It is simply not common practice in Canada to use co-signers for a credit card. You will likely have better luck getting a co-signer with a car, personal loan, or mortgage. 

    Aside from student lines of credit, some of Canada’s traditional established banks can also be resistant to allowing a co-signer to guarantee a loan. Your best bet is to look for alternative or online lenders, as they can be more flexible when it comes to allowing a co-signer. 

    Consider applying for a secured card

    Secured credit cards are often easy to qualify for and can be a great way to build credit history, but they are slightly different from unsecured credit cards. With a secured card, the cardholder provides the lender with money as a kind of security deposit (known as collateral) to guarantee repayment of any debt they carry on the card. The amount of the deposit then acts as the card’s credit limit (the total amount the cardholder can spend using the card). You will receive this deposit back if you close the credit card account.

    Note that your funds are held by the credit card company and are not used to pay off your monthly balance. You must still pay off your accumulated credit card debt each month. However, if you miss a payment, the credit card provider can use the funds they are holding to pay off your debt. 

    Because you must provide the credit card issuer with a deposit, the credit card company assumes no risk if you default on your debt. For this reason, secured credit cards are much easier to qualify for than unsecured cards and are more ideal for newcomers and Canadians with no credit history. There are many secured cards that can help newcomers build credit history. Refresh Financial’s Secured Card is specifically designed to help individuals build a positive payment history.

    Pay Your bills on time using a credit card

    Paying bills, such as phone bills, internet bills, and utility bills, can help someone build a positive payment and credit history over time as long as you use your credit card to pay. While most utility companies in Canada don’t report payments to credit bureaus, your credit card provider will report the payments you make towards your credit card balance. As long as you make payments on time, your credit score will get a positive boost over time. Note, however, that many utility companies charge an additional fee of 1.75% if you pay using a credit card.

    Pay your credit card balance each month

    Equifax and TransUnion consider a variety of factors when calculating your credit score. Whether you have lots of credit history or are a newcomer to Canada, the factor that counts the most towards your credit score is payment history. Payment history makes up 35% of your credit score. Over time, your credit score will increase as long as you pay your bills in full and in a timely manner. Keep in mind, though, that even just one late or missed payment can negatively affect your score. Remember, the goal is not just to build up a credit score but also to create a positive credit history. On-time payments will help you develop a solid credit history.

    Also keep in mind that if you don’t pay off your credit card debt every month, you’ll also be charged interest and possibly even late payment fees. Those numbers can quickly add up and balloon out of control. Having massive credit card debt won’t help you develop the positive credit report you’re aiming for, which is another reason it’s so crucial to pay off your credit card each month.

    Only use one or two credit cards at a time

    If you’re not experienced with using credit cards, using too many cards can be difficult to manage and dangerous for your credit score because it can cause you to miss payments. As noted above, payment history is an integral part of your credit score so you don’t want to do anything that would cause you to miss a payment. Using only a couple credit cards will help you manage your payments and having a long credit history of on time payments will help give you a glowing credit report.

    Diversify with different credit types

    Credit mix is another important factor that credit bureaus consider when calculating your credit score. Your credit mix refers to the different types of credit accounts that you have with various creditors. Credit types include things like loans, credit cards, and mortgages. You’ll build a higher score if you use different forms of credit because potential lenders like to see that you know how to handle a variety of debt. 

    Can I Build Credit Without a Credit Card?

    Yes, there are ways to build credit without a credit card. You might think you need to apply for a handful of new credit cards to rack up credit. While using a credit card is an excellent way to build up credit, it’s certainly not the only way.

    Taking out a personal loan and making regular repayments towards it is another way to build up credit history. This can be done with many types of standard loans, including car loans and student loans.

    If you're new to Canada, haven't used credit in the past, or are recovering from an insolvency, there are credit building programs available to help you build your payment history and positively influence your credit score.

    Why Do I Need to Build a Credit History?

    It’s crucial to build an extensive credit history because it’s another one of the key factors credit bureaus consider when calculating your credit score. Remember, your credit score is used by potential lenders to determine your overall creditworthiness and how likely you are to pay back a loan. Your credit score can even determine how likely you are to get a job, a loan, a good credit card and even a mortgage. Not only will your credit score determine how likely you are to get approved for a loan, but it will also determine what interest rate you’ll get. The longer and stronger your credit history is, the better your credit score will be.

    How Long Does it Take to Build a Credit History?

    Unfortunately, it’s very difficult to provide a time frame for how long it takes to build a credit history when starting from scratch. Equifax and TransUnion only describe the five main factors they consider when calculating a credit score (payment history, credit utilization, credit history, credit mix and credit inquiries). They do not give out specifics about their scoring algorithms and how they determine specific scores or exactly how long it takes to accumulate credit score points. In general, however, you can expect it to take at least three to six months to get your credit history established. The longer your history, the greater boost it will have on your score.

    How is the Length of Credit History Determined?

    Your credit history begins the first time you open your first credit card or take out your first loan. When calculating credit history, credit bureaus consider which of your accounts has been open the longest, as well as the overall average age of all your credit accounts. When it comes to the length of your credit history, lenders will consider the account that has been opened longest as well as the average age of all your open accounts. The longer your accounts have been opened in good standing, the more they will boost your credit score.  

    How Many Years of Credit History Do I Need for a Mortgage?

    To be eligible for the best mortgage rates in Canada, you’ll need to have a good credit score. The credit score you’ll need for the best mortgage rates is 680 or above. While there is no clear-cut rule about how many years of credit history are required to get a mortgage, if you are starting from scratch, it could take at least six years to build up a good credit score of around 680.  

    Can I get a Job with a Bad Credit History?

    Having bad credit history can give you a poor credit score and, unfortunately, having a poor score can make it harder for you to find a job. Employers in Canada may look up your credit rating before they decide to hire you. While your poor credit score may not even be your fault (because, for example, you are a student or a new immigrant) it doesn’t matter. A potential employer may simply see you have a low score and decide that you are not responsible or mature enough to manage a job because they assume you can’t manage your finances.

    How Can I Check My Credit History in Canada?

    The best way to check out your credit history is to get a copy of your credit report. One of the quickest and fastest ways to get your credit report is to sign up to Borrowell. Once you've signed up for Borrowell, you can download your Equifax credit report for free. You can also contact Equifax and TransUnion directly to get a free copy of your credit report, but they may come with additional fees and might not allow free weekly credit score and credit report updates. 

    Monitor Your Credit with Borrowell

    You can sign up for Borrowell for free and download your Equifax credit report. In just a few minutes, you can start monitoring your credit score and see how your credit history impacts your overall financial health.

    Get your Credit Report

    Sandra MacGregor
    Sandra MacGregor
    Personal Finance Writer
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    Sandra MacGregor is a professional writer who specializes in topics such as finance, travel, health, and lifestyle. Her work has been featured in the Toronto Star, the Montreal Gazette, and the New York Times. She is a regular contributor to the Borrowell blog.

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