How to Build Your Credit Score in Canada

Here at A Teen Perspective, one of our goals is to send a clear message to readers that we are all just teenagers making our way in life, the same as you. When we discuss topics featured on ATP, we’re seeing them through the same relative lens that our readers would, and it’s a point of view that we feel is grossly underrepresented in the media. With that being said, we also have many of the same questions and struggles as you do. We’re all in the stage of life where we are maturing and starting to make a life for ourselves, and with that comes a plague of uncertainty. Here at the Advice column, our mission and purpose are to provide answers to teens, from teens. One way we can do that is to provide explanations of confusing elements of the world around us and give you the knowledge and tools you need to make sense of it all. This article is going to outline how to build a credit score in Canada, including what it is and the benefits it can provide.

Think of a credit score like a job evaluation, or like the learning skills at school. When you display that you are hard-working and kind at school or your job, you will receive a good evaluation which can open more doors for your future or progress your career. A credit score does the same thing, but your evaluator is your bank. It’s a little 3 digit number that is a score of how well you manage your credit, and it can be found on your credit report. A credit report is just a summary of your credit history. It documents when you borrow money or apply for credit, and is used when evaluating your credit score. If you carry a balance on your credit cards, pay the fees on time and have little to no outstanding debts, you will have a high credit score, which is good! This is what people will look at if you want to borrow money, apply for a job, be a tenant in their living space, get a promotion, be provided with insurance, and a whole number of other things. It’s a number that tells people if you can be trusted with money. Your credit history is very important, not only because it can help you achieve all these things, but can also improve your financial skills or show signs of identity theft if money is being taken out of your account that you aren’t spending.

Building a credit score at our age probably isn’t a prevalent thought in our minds. Many teens don’t even have credit cards, usually opting for the simpler transactions of a debit card, which take money directly out of your account at the time of purchase. Having a credit card is almost essential for adulthood. This card is going to allow you to make big purchases that most people just couldn’t afford at one time, giving you the opportunity to stretch your money efficiently and pay off expenses gradually. Building your credit score early can allow you more freedom with your finances early in life, provided you keep these same good habits. Building a credit score is as easy as monitoring your own spending on the card. Ensuring that you always make your payments on time, pay the minimum amount required if you can’t pay in full, and contacting the lender if you know you’ll be unable to pay in full by a deadline are all great ways to keep track of your finances and help keep your credit score high. A useful strategy to keep track of your spending on credit is to never go above the credit limit. For example, credit cards with a $5000 limit should only be used for less than $5000 in total purchases, as borrowing more than your card’s limit, even if you do pay it off, can lower your credit score. A good rule of thumb from Canada.ca is to use only 35% of your available credit each month. It is better to have a higher credit limit and use less of it than to assume you won’t need a high credit limit and be hit with an unexpected purchase. Trying not to apply for credit multiple times in smaller periods of time is another great way for lenders to trust you with money. If you are applying for credit multiple times in rapid succession, lenders will believe you’re urgently seeking credit or trying to live beyond your means, which are huge red flags when loaning money to someone. Remember, you want your credit report to show you are responsible with your money because you’ll be using their money that they’ll expect to be paid back. Having a mix of credits can prove beneficial to your credit score as well. A score can be a lot lower with just one type of credit such as a credit card, but there are car loans and lines of credit separate from the card that can impact your credit score in the exact same way, provided you adhere to their regulations and spending requirements. The risk in this comes with being unable to keep track of all your credit and incurring more debt as a result. Using a notepad or some tracker through your bank’s app is going to alleviate this problem and make you more vigilant when using credit. Another option is utilizing the services of a credit counsellor, whose job it is to give you information on managing your credit, debt management and how to use credit wisely in different situations.

We hope you found this information useful and provides some clearer insight on how credit works and steps you can take to be trusted with applying for lenders’ money, something every adult must do in their lifetime. Our generation is slowly and steadily moving forward into adulthood, and while these conversations about the workings of our society can be harder to have with adults, they are welcome and encouraged here at A Teen Perspective. The advice column is always open for teens with questions and concerns, and we’ll always be here to answer them.

-HL