Building a good credit history is more important than you think

If you were ever turned down for a loan, charged higher interest rates, or had a landlord refuse to rent you an apartment, it could be because of your credit history.

Your credit history may make you appear to be a bad risk, or indicate that you sometimes have trouble making your monthly payments. Maybe you never had credit before, so there is no track record of how you pay back money you borrowed. Or maybe – without knowing it – you were a victim of “identity theft”, which affected your credit rating.

Many Canadians – especially newcomers to Canada or students – who do not have much experience with credit would be surprised to learn how crucial it is to build and maintain a good credit history if you want to qualify for a mortgage or other types of loan.

To help consumers understand the ins and outs of credit, the Financial Consumer Agency of Canada (FCAC) has developed a useful booklet called Understanding Your Credit Report and Credit Score, which you can obtain at no cost by calling FCAC, toll-free, at 1-866-461-3222, or by visiting the Agency’s Web site: www.fcac.gc.a.

Know how credit reporting works…

Three major credit-reporting agencies in Canada – Equifax, Transunion and Northern Credit Bureaus – keep a file on consumers, called a “credit report”. This is one of the main tools lenders use when deciding whether or not to grant you credit.

The credit report rates you on how well and how promptly you pay your bills. Some credit-reporting agencies will also assign you a “credit score”, to indicate to potential lenders how likely you are, compared to other consumers, to pay back the money you borrowed.

And make it work for you

One of the best ways to start establishing a good credit history is to use a credit card, but which card is best for you? Check out FCAC’s electronic Credit Card Interactive Tool, available on the Agency’s Web site. It can help you narrow your selection and choose a card that best matches you needs and preferences. FCAC’s publication Credit Cards and You also compares the features of approximately 200 credit cards available in Canada.

In addition, FCAC offers the following tips on how to maintain a good credit history and use credit wisely.

. Don’t apply for credit you don’t need.

. Don’t spend more than you can afford.

. Don’t go over your credit limit.

. Be sure to pay your bills on time, and pay them in full, if you can.

. If you can’t pay your credit card balance in full by the due date, be sure to pay at least the minimum amount required.

. To protect yourself from fraud and keep your credit rating intact, make sure you check your credit card statement carefully each month. If you notice you have been charged for a transaction that you didn’t make, you should contact your credit card issuer.

Finally, it’s also important to check your credit report with the three credit-reporting agencies at least once a year. To get a copy of your report, contact the agencies at the addresses listed in FCAC’s credit report booklet. If you notice an error in your credit report, call your financial institution and the agencies immediately, and have the error corrected to prevent problems in the future.