In order to purchase a home, you must have an established credit
history. Each time you pay a bill (for your credit card or for a monthly
service such as your telephone or electricity), you are establishing a credit
rating for yourself. A credit rating is a number or score that banks, mortgage
companies, and other lending businesses use to assess your level of financial
responsibility.
Paying your bills on time every month, contributes to having a good
credit rating. If you miss payments, or are often late making your payments,
your credit rating is probably not as good, and money lending institutions will
consider this when you apply for a loan. Numerous factors contribute to your
overall credit score, such as outstanding debt, payment history, severity and
frequency of derogatory credit information, and the amount of credit you use
compared to what you have available.
Also important is the length of your credit history. For many
immigrants, this only begins after entering Canada.
To begin to establish a credit history:
- Open an individual savings or chequing account in your name. From this account, your deposits, withdrawals, and transfers will demonstrate that you can handle more efficiently and responsibly.
- Applying for a smaller loan demonstrates responsibility, and will positively affect your credit rating over a longer term, once you demonstrate that you can make timely and consistent payments.
- Other forms of credit include department store and gasoline credit cards. These are generally easier to obtain than major credit cards and, if used responsibly, can also serve to enhance your credit rating.
- In short, there is no quick way to establish credit. It is much better to go slowly and develop a strong credit record than to apply for too many credit cards or a loan that is larger than you can handle. Mortgages are long term commitments, so appreciate that lenders will need proof of longevity and consistency.
Your Credit Rating
Once you’ve begun establishing your credit history, it is a good idea,
and your right as a consumer, to know exactly what your credit rating score is,
even if you always pay your bills on time.
In Canada, Equifax Canada and TransUnion are the two major credit
rating companies and will give you a copy of your credit history and overall
credit rating score, usually for a fee.
