How to Establish Credit in Canada?

Establishing credit in Canada involves borrowing money and paying them back over a period of time. There are several smart ways to start building your credit history: applying for a gasoline or retail store credit card, applying for some of the major credit cards with a secured credit limit, starting with an overdraft, finding a co-signer, and investing, among others.

Gasoline and retail credit card is a good starting point for building a credit history. You can make several small purchases for needed items. Remember the due date of the payment and repay in a timely manner. You will establish credit history by way of making timely payments.

Another way to go about building credit is to apply for a credit card that has a secured credit limit. Even if you donít have credit, you may qualify for some of the major credit cards. You can do the following: put some cash (say, several hundred dollars) in a frozen bank account, and the bank may be willing to issue a credit card with a comparable credit limit. You can discuss details with a customer service representative at the bank. Alternatively, you can start with an overdraft which is, in essence, a permission to spend a larger amount of money that what you have deposited in the bank. This loan is repaid the next time you deposit money. Using an overdraft on a regular basis is not recommended, but using it from time to time proves to the bank that you are capable of paying what you owe.

If you have more money, you can invest in short-term guaranteed investment certificates or another financial instrument. Form the bankís perspective, you are responsible and committed to investing money through the bankís investment mechanisms. As a last resort, you can find a co-signer and apply for a loan. This is a good way to prove that the bank may trust you, but the co-signer must have a particularly good credit history.

Keep in mind that loans for used cars and private loans wonít be reported to the credit bureaus. When you start building credit, you have to understand credit scores and credit reports. In Canada, there are two reporting companies: TransUnion and Equifax. When you open an account with a bank, any activity on this account is listed in their reports. Lending institutions check with the reporting companies in order to assess if the potential borrower is risky. High credit score shows to the bank that you are a trustworthy borrower.