You turned 18 and you are about to start a new journey as a university or college student. Your area of study will set the stage for your career and the financial choices you make as a student you will lay the foundation for your financial future. Make the right choices early on and enjoy the many benefits for years to come.
Building a
good credit history is one of the most important things you can do for yourself
and your financial future. A good credit score can help you get approved for a
mortgage, car loan and credit cards – it will also help you when applying for
certain jobs, a new apartment, car insurance, utilities and even mobile phone plans.
The sooner you start building your credit, the more time you have to build a great credit score.
Here are some
tips to get you started.
Learn How Credit Scores are Calculated
Your credit
history can reveal a lot about you to a potential financial lender, landlord or
employer. A good credit score will help you get a loan with better interest
rates and a bad credit score can hinder your chances of being approved for a
loan.
Here is how your credit score is calculated
Payment History - 35%. Your payment history is just like it
sounds – it’s your history of repaying your debts. This includes the number of
times you made on-time monthly payments - and it also lists your late or missed
payments.
Takeaway
– Strive to make your
payments in full each month or at least make the minimum payment and avoid late
or missed payments.
Used Credit vs. Available Credit - 30%. This is the amount you owe compared to the credit you have available. Also known as the credit utilization ratio – it is the amount you are currently borrowing divided by your credit limit. As your credit utilization increases, your credit score can go down. Lenders view high credit utilization as a risk for defaulting on a loan because a significant portion of your monthly income is going towards paying your debts.
Takeaway – Keep your credit utilization below
30% to prevent your credit score from going down. For example – if your credit
limit is $1000 then your monthly purchases should be typically below $300.
Credit History - 15%. This is how long you have credit – including how long your oldest and most recent accounts have been open.
Takeaway – A long credit history signals to
creditors that you can responsibly handle your credit accounts over time.
Public Records - 10%. This is a list of bankruptcies or collection issues related to you not paying your monthly balances.
Takeaway
– Strive to have this
section empty as any recorded issue may have a significant negative impact on
your credit score.
Inquiries - 10%. Anytime your credit file is accessed for any reason, the request for information is logged on your file as an inquiry. Too many inquiries for your credit information can lower your overall credit score.
Takeaway
– Limit the number of
times you apply for a credit card or other credit.
Get a Credit Card
If you are
enrolled in a post-secondary institution and have a source of income then
getting a credit card is a great place to start if you want to build good
credit.
UCU offers students
a Mastercard with a relatively low credit limit - making it easier for you not
to overspend. A lower credit limit will also make your monthly payments manageable.
The UCU
Collabria Cash Back Mastercard® offers cash back for certain purchases making
it an attractive first credit card for students.
More
information about UCU Credit Cards can be found on our website.
Use Your Credit Card Responsibly
The key to
building good credit with a credit card is to use your card wisely. Avoid
spending near the upper credit limit on your card to keep your credit
utilization ratio low. And try to use your card for purchases you can pay for
right away – this will reduce the chance of you getting into debt.
Pay off Your Balance Every Month
If you can,
pay off the entire balance of your monthly statement – this will help you maintain
a solid payment history. Pay at least the minimum amount each month on time to
avoid late or missed payments that will negatively impact your credit rating.
Make Regular Payments on Your Other Loans
Make regular
payments on a student line of credit or student loan. The repayments of
these loans show up on your credit report history and contribute to your
overall credit rating. A late or missed payment can result in a lower credit
rating,
Don’t Apply for Too Many Credit Cards at Once
Applying for
several credit cards at once can lower your credit score since new credit
inquiries make up 10% of your score.
Check Your Credit Score
Monitor your
credit score to check for any errors that could damage your credit rating.
There are two main credit bureaus in Canada: Equifax and Transunion. Contact
one to request your credit report.
For more information visit your local UCU Branch and speak with one of our loan experts.