A student’s guide to building a strong credit score
Credit to Author: Ivy Chiu| Date: Mon, 19 Aug 2019 16:03:36 +0000
It’s back-to-school time and international post-secondary students are embarking on a time of major life milestones in a brand new country with unfamiliar surroundings – an exciting, but also nerve-wracking undertaking. Not only are you deciding what to study, but you are also encountering many firsts during these pivotal years – first time living away from family, first part-time job, and perhaps first time taking on major financial debt.
If you’re starting to use credit – whether it’s with a credit card, student loan or other form of credit, you’re in a good position to start building your credit history early. Having a strong credit history will help you establish a good credit score.
Your credit score is a reflection of your ability to borrow money responsibly. Many people may need to look at your credit score to assess your financial health: a potential landlord, the phone company, or a new lender (note: this will be important if planning an off-campus move). Needless to say, the higher the score, the better!
How to build and maintain a strong credit history
Your credit score is calculated based on a number of specific factors. Here are the four primary factors that affect your score, as well as some key ways to ensure you start out on the right foot.
Payments: Whether or not you pay your bills on time is the most important factor in your credit score. That’s why you should try to pay them by the deadline – even the ones that seem small and insignificant. If you think you will have trouble paying a bill, consider getting overdraft on your account. When you have overdraft protection, your bank will cover any shortfalls (up to a certain limit), which protects your credit rating. Tip: Make sure you can afford to pay back any money you borrow. Otherwise, you could end up hurting your score by taking on more debt than you can handle.
Limits: If you’re close to your credit card limit(s), you’re a higher risk to your lender. While it’s always best to pay off your credit card balances in full, making at least your minimum payments is a must. Try to use less than 35% of your available credit limit.
Duration: The longer your history, the more accurate your credit score will be. If you’ve just started using credit, your score will be lower but you can build it over time. Starting now will put you in good shape to borrow for larger items down the road.
Applications: If you apply for more or new credit often, it could be a warning sign to lenders that you’re having some financial difficulty. Limit the number of times you apply for credit in a short period of time. it’s a good idea to review a copy of your credit report to make sure it’s accurate and up to date. You can do this by contacting either of the two credit agencies in Canada: Equifax or Trans Union.
Visit rbc.com/newcomers or visit a branch near you for help and advice to help you save more and settle in faster.