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Building Credit: What You Need To Know!

Credit – we’ve all heard of it but do we really know what it is or how important it is? I certainly didn’t when I was in college. This blog is going to give you some valuable information about credit. Having good credit is crucial in today’s society. It helps determine your approval amount (borrowing power), interest rates and could be the determining factor for whether or not you can make your next move like purchase a car or get an apartment or mortgage without requiring a co-signer. Here are some important things to know about credit…

Choose the Right Card

Choosing the right card is imperative. I can remember when I started post-secondary I felt like I was getting credit card offers from banks every other week! It was exciting but could have been the beginning of a very dangerous slippery slope. Make sure you do your research and choose the right card to meet your needs. Do you carry a balance? Perhaps a low interest card might be best for you. Do you travel a lot? Maybe you’ll opt for a rewards card instead. The FCAC (Financial Consumer Agency of Canada) has a really handy Credit Card Selector Tool that can help you choose the right card.

One is ENOUGH!

Don’t get sucked in to all the mail offers for another student visa. One card is plenty. In order to build credit, you have to use it. But you also have to be wise about it. Credit cards in simplest terms is money you don’t have that most people use to buy things they don’t need. Don’t be this person! Maybe you just use your credit card for a minimal variable expense – gas or groceries. This way you can build your credit but also have the capability to pay off your balance.

Due Dates: Don’t Ignore Them!

Did you know that 1/3 of your credit score is based on your payment history? This helps lenders determine if you are high risk borrower. If you let your friend borrow $20 and they never pay you back – or pay you back a month after they said they would – would you lend them $20 again? No. You wouldn’t. Lenders are like that but on a much bigger scale. It is crucial to make your payments on time, every time. If you find that you are not able keep track of bills and spending because let’s face it – college is hard and there is A LOT of stuff to remember – have a read of one of my older blogs to help keep track of your finances.

Pay Off the Balance

Sometimes this is easy advice to give but hard to follow. Life happens and there may be times that you are forced to use credit. Perhaps you need to fix the car, home repairs etc.  If you can avoid carrying a balance – avoid it. Once you start carrying a balance and have minimal income (like most students do), it becomes incredibly challenging to see any movement with clearing up your debt. Interest will just continue to accrue and you can end up on that slippery slope I talked about earlier. Let’s say you have a $1000 credit card balance at 18% interest. Did you know it would take you 10 years to pay it off if you are only making minimum monthly payments?

To sum it all up – credit is an important part of our financial lives these days. It is crucial that students understand how to build credit in a healthy way and understand the risks associated with over-using credit cards. Making a budget is a great way to make sure you don’t always have to turn to your credit card to help make ends meet. Make a budget – and stick to it!

Until next time… 

Celeste :) 

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Celeste Coles

Financial expert, hockey mom, problem solver, fun seeker.

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