What “Credit history is and how to make it good in Canada”

Importance of Credit History and Credit Rate Canada
Some new immigrants understand the importance of credit history and think it is part of success. Other immigrants don’t pay attention to it and have regret about it later because they find they can’t get credit when they really need it. Credit history allows a creditor to establish his trust with borrowers to show them they can risk their money or goods involved. It is like a measure of trust for the borrower, if he returns the borrowed funds in the time. For example, payment of a phone bill in the time allowed on the phone bill will help to build a good credit history for the creditor with his phone company.
Your credit history starts when you make the first purchase using a credit card, buy something on loan or take out a mortgage. Destroying your credit history is caused if you don’t pay your bill in time and your creditor complains to the credit bureau. A credit bureau collects information about all creditors in Canada. If your credit history is damaged by a mistake or misunderstanding, you can appeal this with the same credit bureau. You can write a letter with an explanation to the credit bureau. You have a right to demand to see the information they have on file about you and ask to add lost information to your credit file. You can ask for a free copy of your credit file once a year. You also have the right to know why someone didn’t give you credit. All Canadian provinces (except Alberta and New Brunswick) give you the right to know everything in your credit file and also who asked about info on you.
The free-of-charge phone number in Canada is 1-800-465-7166, the address is: Equifax Canada Inc., Consumer Relations, Box 190 Station Jean Talon, Anjou, Quebec, P3A 2A3. (There are other credit bureaus in Canada as well. You can find referral references in the Links area.)

Financial institutions pay the credit bureau for info on borrowers. In most cases the credit bureau keeps information about each person for the past 7 years. Sometimes just credit history is not enough to borrow a lump sum (especially for big amounts – like a mortgage). Family income makes sense as something the banks want to know too. As for banks or another financial institutions, they keep credit history on their clients too in their own computers. Obviously it is very important when borrowing money to return the principal and interest on a loan in the time required. To borrow money from the bank, not only are credit history and family income important, but also the banks use a formula for determining whether you can easily carry the payments of principal and interest.
For example, the annual mortgage payment must be not more than 30% of the gross family income minus property taxes, and also must not be more then 40% of gross family income minus property taxes and minus other payment for liabilities.
In reality all financial institutions use these formulas for determining whether they will lend a client money for the first mortgage. I advise all of you to take advantage of having a line of credit (but don’t mix-up this with credit cards). This is a bank account where you pay nothing to have it with zero balance. The bank gives you a ‘limit’ as to how much money you can borrow from this account, subject to carrying charges. You then pay the bank interest starting from the first day you borrow the money. To keep your credit history in good condition you have to pay a minimum of 3%-4% (depends on the bank) of the principal each month. Any violation of the credit line conditions involves a bad mark for your credit history.
In some cases the credit line can be used as an emergency fund in financial planning for family budgeting.

Michael Arbetov , CFP, FMA
Financial Advisor

( About Credit History in Russian)

With thanks to Patricia Chase for assistance with the translation.
Related articles:

 

 

 

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top