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What is a credit history?

Your credit history is a record of your ability to borrow and repay loans on time. It is a key piece of information that a financial institution will review when considering whether to grant you credit (e.g. a credit card, a loan, a line of credit or a mortgage). If you’re new to Canada, it is important to understand how credit works and to build a good credit history in Canada. A good credit history will help you borrow money in the future.

Why is it important?

A good credit history and corresponding credit rating show your ability to repay any money you have borrowed on time. One or more missed or late payments can result in a bad credit history, affecting your credit rating, and making it difficult for you to borrow money in the future.

Building a good credit history

To build a good credit history in Canada, you need to apply for credit and demonstrate that you can use credit responsibly. One of the best ways to start building your credit history is to apply for a credit card. Credit cards give you the ability to charge your purchases, rather than having to pay for them with cash or debit right away. Using a credit card responsibly (i.e. paying on time and not going over your credit limit) shows that you are able to manage your cash flow, which demonstrates to lending institutions that you are credit worthy.

Credit cards feature many advantages over other payment methods, such as protection against fraudulent charges, 1 and Purchase Security & Extended Warranty Protection.

However, to fully enjoy the benefits and features of a credit card, it is important to use it responsibly.

1See the applicable Cardholder Agreement for information on fraud and unauthorized transactions.

How does credit card billing work?

Use your credit card to pay for purchases. Each month, the financial institution that issued your credit card sends you a statement telling you how much you spent on your credit card, and the minimum amount you need to pay back. If you do not pay the full amount shown on your statement, you are charged interest. These interest charges will be added to the balance you already owe. Interest rates for credit cards are often higher than for other types of credit, such as like loans or lines of credit. So it’s important to use credit cards carefully and pay off the balance each month.

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