Balancing Credit

Credit (from Latin, meaning "to believe") is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

A credit report is a summary of your payment and repayment history. Every time you make a payment (are late with one or miss one), your credit report records this. Whenever you borrow money or require financing, the lender checks your credit to see whether or not you are a financial risk based on whether you make payments regularly and on time. Much of what happens in your life depends on what your credit report looks like, so it’s important to always make your payments on time and in full.

Your credit report will be checked when you:

  • open a bank account.
  • sign up for a cell phone plan.
  • lease or purchase a car.
  • purchase a condo/house.
  • rent or lease an apartment/house.
  • apply for a credit card.
  • apply for any loan or line of credit.

If you pay your bills every month, but not on time, you still might be eligible to borrow money or get a loan, but you’ll most likely be viewed as a risky borrower and will be charged a higher interest rate. Those car ads that say "0% interest OAC” (on approved credit) means that if you pay your bills, each month, on time and in full, you'll probably get that deal. If you don't, you'll probably pay upwards of 10-20% in interest charges.

How do you build good credit? 

  1. Pay your bills on time and for the full amount each month. In the case of a credit card, always pay (at the least) your minimum payment amount (but always try to pay off the full balance each month).
  2. Pay down your credit card(s) so that no more than 60% of the total amount available to you is used. For example, if you have a $10,000 credit card limit and you owe more than $6,000 on it, you are identified you as a financial risk.
  3. When paying credit card bills, don't pay your balance off until you get your statement. If it's paid off too early, there's nothing for the credit bureau to report on, and without being able to do that, you can't build credit.
  4. Don't have a lot of credit cards. The "more the merrier" does not apply here. Minimize your credit cards to as few as possible (one is the best number), because when a lender checks your credit and you have three cards, for example, it looks as if you have a lot of credit outstanding, and you will be a financial risk.
  5. Review your credit reports annually. You can order your credit reports for a fee online; however, there are free ones available, so save yourself some money. There are two main credit reporting agencies in Canada: Equifax Canada and Transunion. Each report slightly differently, so request both. 
  6. Report mistakes you find on your credit report. Many Canadians have mistakes on their credit reports, but if you don't know about them, no one will tell you, so check annually. Find help understanding your credit report. 

Order your credit report(s):

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