When international students arrive in Canada, they are bound to follow a new set of rules. One of the things that take international students by surprise is the importance of credit history and credit scores in Canada.
Good credit history and credit score are important to have in Canada. It is one of the most important things to take care of once you are in Canada. Lenders will look at your credit score when you try to buy your first house or car or get a personal loan. If your credit score is low, getting a loan or making purchases would be difficult. In Canada, two agencies: Equifax and Trans Union, track your credit history.
Since it is very essential, it is better to start building your credit score while you are a student if you plan on staying in Canada once your studies are over. We’ll help you build your credit score. First of all, let us know more about your credit history and credit scores.
What is Credit History?
Credit history is the record of how you use money. You can say that it is a sort of a financial report card that records your credit activity, such as the number of credit cards you possess, the amount of debt you have, the types of credit you use, etc. You need to have a credit card to have a credit history.
What are Credit Scores?
A credit score is a three-digit number that is an indicator of a person’s ability to repay debt. It is based on a person’s credit history. Credit scores in Canada range from 300-900. Being closer to 900 means you have a good credit score. A credit score that is between 300-600 is considered to be bad. Paying your debts back on time helps you build a healthy credit profile.
Factors That Influence Credit Scores
Many factors influence your credit score, of which three main factors have a huge impact on your credit score. They are:
- Payment history: Your credit history is one of the main things that lenders look at.
- Credit Utilization: It is the percentage of the available credits that you use.
- Length of Credit history: This is another important factor that influences your credit score. Lenders usually prefer someone with a long credit history over someone with less or no credit history.
Building a Credit History
Here’s what you need to do to build a credit history:
Open a Bank Account
Open a bank account in a Canadian Bank. This can be done even before you arrive in Canada. There are many Canadian banks that offer great deals to students. Check out the banks and choose the one that you think has the best deals and is the best for you.
Get a Student-Friendly Credit Card
Credit cards don’t only help build a credit score, but they also help cover daily expenses. Students should get a credit card that is tailored to their needs. There are numerous providers of student-friendly credit cards in Canada. Student credit cards don’t require a previous credit history. Some of them have no annual fees, and some come with added benefits.
Open a Secured Credit Card
A secured credit card enables students to build credit with a low amount of risk. How does it work? Well, it works much like a debit card. You add money to the credit card, and you can only spend the money you have deposited. It is perfect for students who are worried about overspending.
Pay Your Bills on Time
A credit bureau tracks your bill payment, and paying your bills on time will boost your credit score. Not paying bills on time will hurt your credit score, whereas paying them on time will help build a good credit score. You don’t have to pay the entire balance; instead, you can pay at least the monthly minimum payment.
Check how many days of the grace period you get after receiving your credit bills. Keep track of every payment. You can also pay your bills through your bank by setting up an automatic monthly payment.
Monitor Your Credit Score
Monitoring your credit score is a good thing. You can use credit monitoring services to track your credit score. These services not only help you to keep track of your score; it also adds an extra layer of protection by identifying identity theft and fraud. In addition, keeping track of your credit score will help you take care of your financial health.
Create a Budget
Another thing that will help you have a good credit score is creating a budget and sticking to it. Ensure that you don’t go over the budget in order to have a good credit history and build a good credit score.
Things to Avoid
Here are a few things that you should avoid doing when trying to build a credit history:
Not Paying Credit Card Bill
Not paying your credit card bills on time will decrease your credit card score. And lenders will view you as a high-risk borrower, and things might not work in your favour. Therefore, never be late with your credit card bill payment.
Utilizing a Large Amount of Available Credit
You should not use a large amount of your credit line. It is advised to use about 35% of your available credit line. Using more than that does not reflect well on your credit history.
Frequently Closing Your Credit Card
Frequently closing your credit card account is bad as this will negatively impact your credit score due to the changes in credit utilization. This would, in turn, affect your credit history. Therefore, you should not keep on closing credit card accounts as it will do more harm than good.
Things to Look for in a Credit Card
Selecting a credit card is an important decision that needs to be made after much consideration. Here are a few things to consider when choosing a credit card in Canada:
- Annual fee of the credit card
- If the credit card has an annual fee, how much is it? Is it high or low?
- The interest rate on purchases
- Benefits and perks
- Available discounts
- The insurance options available for purchases and rentals
Is it possible for international students to build a credit score?
Yes, it is possible for international students in Canada to build a credit score. They can do so by choosing the best student credit card, paying credit card bills on time, remaining within the utilization line of the credit card, creating a budget, etc. But first of all, they should open an account in a Canadian bank. As building a good credit history and credit score is important, one should also avoid doing things that might negatively affect the credit history and credit score. One should avoid not paying credit bills on time, frequently closing the credit card, and utilizing a large amount of the available credit.
Do international students have a credit score?
International students don’t have any credit scores when they set foot in Canada. But they come under the credit line system once they open a utility account or sign a mobile phone contract. It is better to start building a good credit score, and credit history as a student as these two are important and will be needed in the future for buying a car, house, taking a loan, etc.