By Linda Taylor
Business Manager

 

Building a Canadian credit history is extremely important. Unfortunately, there are a lot of people who just don't know this and do not have any credit history.

Why is credit so important? You need to have a credit history on your Credit Bureau if you ever want to finance a vehicle, get a mortgage, get a phone or even get utilities. And if you do not have credit established in your own name (I repeat, in your own name), then you will find yourself in trouble. Even if you are anti-credit like the "I'm Against Credit Type" of personality I describe below, you may find yourself in a situation where obtaining financing is necessary one day. Better safe than sorry.

Before we continue, here are two facts about credit everyone needs to know:

  1. If you want to borrow money, you have to prove your ability to repay credit. While there are different ways of helping to build an individual's credit, the first part of the piece always involves a credit card. Without a credit card, you will be hard pressed finding any bank to give you a loan. So, if you have never had a credit card, you will likely be unable to secure financing.

  2. If you have no credit history showing on your Credit Bureau report and you're over 25 years old, a bank will assume you've had a bankruptcy.

Now that you know that, let's take a look at four common scenarios that describe situations where a person may not have an established credit history:



1. The Young Buyer



This is the young adult who recently graduated high school or university, who either still lives at home with their parents or may be renting.

The scenario: The Young Buyer wants to finance a vehicle or get a mortgage on their first house. Unfortunately, neither scenario will happen. Even if The Young Buyer is an avid saver* (*Linda's credit building tip extraordinaire), without having an actual credit card, there will be no credit history reporting and thus, no credit history to warrant a loan. The Young Buyer will have to find a co-signer or buy the vehicle outright, and have to look at renting longer while developing a credit history.


2. The Bill Paying Spouse



This is the spouse who's name is not on any bills but is responsible for the family budget. This seems to be the case for a lot of women. Utilities accounts will be set up in their husband's names and the wives take care of paying the monthly bills. The Bill Paying Spouse may even be listed as a joint user on their spouse's credit card.

The scenario: The Bill Paying Spouse goes to re-finance the mortgage by themselves and does not get approved because they do not have any credit history in their own name (do you see the pattern?). But what about the fact that The Bill Paying Spouse is also a joint credit card holder? Unfortunately, that means nothing because being a joint card holder in Canada only gives you the ability to use the card as a permissible user; it does not, however, report to the Credit Bureau because the card was originally opened by the spouse. As you can see, this clearly can set The Bill Paying Spouse up for serious trouble should there ever be a reason they need to get credit by themselves (divorce, death of spouse).


3. The Newcomer or Returning Canadian Resident



If a person is completely new to Canada, it is obvious that there will be no credit history to report. If you are a Canadian who has resided out of the country and have since returned, you will most likely not have any credit history showing (this will depend on how long you were gone and what your credit history was like prior to your departure).

The scenario: As a Newcomer, you will likely need to set up utilities accounts, get a phone and you may want to eventually buy a vehicle or get a mortgage. Without credit history, you will have to use large deposits to obtain utilities or a phone and have to wait until you develop a credit history to apply for any type of financing.

If you are a Returning Canadian Resident, the first thing to do is check your Credit Report to see if any history is showing. If you have history reporting, celebrate! You are very lucky! Depending on your score, you may have to take steps to rebuild credit but at least you are on the right track. If your report comes up empty, you will unfortunately have to start from square one again.

Some silver lining: Several of our lending banks have what's called a "New Immigrant Program" and will lend based on certain criteria. You will need your work permit, immigration papers, two pieces of bank specified identification (eg. Permanent Resident Card, Passport) and a job letter from your employer to get the ball rolling. Likewise, banks may have similar programs available for Returning Canadian Residents.


4. The I'm Against Credit Type




The I'm Against Credit Type is the one who is simply anti-credit. They don't need a credit card. They get by fine with cash. They save, buy with all-cash and they are fine with it.

The scenario: My uncle was an I'm Against Credit Type. He simply did not believe in credit and lived fine without it for a long time. This was until he had to work out of the country for a few years. Once he returned to Canada, he wanted to buy a house and was declined when he went to go apply for a mortgage.



The moral of the story is that it is extremely important to have a credit history in place. Even having minor (and I do mean minor) bad credit is better than having no credit at all.

So what are the best ways for people without credit to get it? Check back next week for my next article on 5 Ways To Build Credit If You Have No History.


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Linda is the Business Manager at Country Chrysler Dodge Ram Jeep and specializes in vehicle financing and leasing.
Have a question for Linda? Submit it here.

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