As young people not yet using credit, the factors that affect your credit worthiness are different than those for people who have been using credit for a number of years. This is largely due to the fact that you do not have a credit report for lenders to rely on when you first ask to borrow money.
There are some things you can do in preparation for the first time you ask to borrow money:
- Have a bank account that you use regularly. Deposit your pay cheque and show that you can spend it responsibly.
- Have a second bank account for savings. Contribute regularly to this account, e.g. every time you get paid.
- If you drive, pay your parking tickets and driving fines in full and on time.
- Develop a realistic budget for your day to day spending, as well as a longer term plan, e.g. how to fund post-secondary education. This shows that you have good money management habits and are likely to honour future commitments.
Many young people look forward to having their first credit card. The right time to apply for one is when you can afford to pay back the money you borrow with your credit card. Some things to keep in mind:
- The limit on your credit card is not free, extra money for you to have. When you make a purchase with your credit card, you are agreeing to pay that money back. The longer it takes to pay it back, the more it will cost you.
- Only apply for credit that you need. One credit card, with a very reasonable limit based on your income, is all you need to establish a credit rating. Pay the card off in full every month.
- You need to consent for someone to check your credit report. Monitor how often you allow inquiries on your credit report and keep inquiries to a minimum. Potential employers and landlords will want to see if you are responsible with your money, as will the people processing your student loan applications.
- Cell phones on contract, gym memberships and ICBC monthly car insurance are all forms of credit. Paying all of your bills on time is crucial for a good credit rating.
- Do not co-sign for a friend to get credit. If they don’t pay, you will have to pay the bill for them.
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