Building a good credit score in Canada for newcomers is as important as other things like moving into a new home, acquiring a visa, and finding employment. Not only will you need to build a credit score, but you will also enhance your credit score.
A good credit score in Canada will not just help you to acquire a new house or car but will prove significant amidst all your financial purchases. Credit scores enable organizations to understand and assess your credit report. In short, they will be able to understand your potential to pay your debts on time and make timely payments per month.
The significance of building a good credit score in Canada for newcomers
Whenever you require a significant amount of money or any other substantial loan, creating a credit history will eventually help. It will demonstrate your financial capability and responsibility. Therefore, building your credit history from scratch will be vital.
What factors determine your credit score in Canada?
Numerous factors determine an individual’s credit score, and more or less, these depend on what they do or don’t do with the credit available to them. As a result, the score is liable to change, and it does so quite frequently. The chief factors that determine your credit score are as follows:
Previous payment record
The most crucial factor in determining your credit score is the timely payment of your bills. These bills also tend to show any bankruptcies and debts within their record. Hence, a good payment history is crucial.
The types of credit you possess
Your credit score calculation also comprises the different types of credit accounts people possess. Typically, the common credit accounts are as follows:
- Student Loans
- Credit Cards
- Auto Loans
- Mortgages
The Financial Consumer Agency of Canada claims that you must possess more than one credit type. Credit bureaus and lenders would like to check if you could manage different types of credit in a good way.
Additionally, combining multiple credit accounts will enable one to acquire higher credit scores. Moreover, get yourself only those credit accounts that require full-time payments.
Credit history’s length
The amount of time your credit accounts remain open also affects your credit scores. Your credit score proves to be healthier if your credit account is available longer. The best way is to utilize your oldest credit account and retain it for as long as possible. Keep using it occasionally. However, remember that it must not cost you too much, at least more than what you’re able to gather from it.
The credit inquiries on your score
Lenders tend to figure out your report whenever you open a new credit account. If the inquiry on your report states “hard hit” inquiry, it will substantially impact your report. Conversely, there are soft hits that don’t affect your credit score. Your credit score will suffer immensely whenever an individual seeks credit more than twice in a short duration. Hence, applying for credit only when truly required is better.
The process of achieving a good credit score
- Limit your credit usage – Use your credit wisely and try not to exceed your credit card limit. Keep in mind how much will you be able to repay. Your credit card will have a limit, and exceeding the authorized amount will reduce your credit score, which is terrible. Hence, use less than 35 percent of your credit in each bill payment cycle.
- Restrict your credit checks – Know the hard and soft hits. Understand that your hard hits include credit card applications, rental or employment applications, and mortgages. These hard hits impact your credit report in such a way that lenders feel that you are living an extravagant life. It will reflect that you’re unable to maintain your finances. However, soft hits are only visible to you and won’t impact your history.
- Credit tips – Regularly check out your credit report and continue to analyze your scores. However, in terms of any inaccuracy, inform the credit bureau. Let these mistakes not hamper your credit growth, and keep scoring higher.
- Usage of different credits – Newcomers must start their credit journey in Canada with just a single credit. Gradually, they shall be able to apply for different credit products. These credit types include lines of credit, credit cards, and loans. Hence, a combination of these credits will enhance the credit scores. Moreover, you must ensure to pay back your debts or any money you borrow to avoid destroying your score.
Ordering a credit report in Canada
It is possible to obtain your credit report in Canada either physically or virtually. If you need to derive your report digitally via TransUnion and Equifax, you must pay some amount as a fee. A hard copy will require some time to get you your report. However, the online report will be generated instantly.
The information status of your credit report
The positive information of an individual’s credit report will remain timeless. Conversely, the negative remarks will reflect up to a duration of six months on your credit history.
