The importance of building a personal credit history

Your credit history is your passport to borrowing. With no history of credit, or an unfavourable borrowing record, you could have trouble getting a personal loan, mortgage or credit card in the future.

That’s why you should get started on establishing a positive credit history as soon as possible and take care to keep that history positive. Whether you’re young, you’re a newcomer to Canada or your finances are well established, your credit history is a key element of your financial picture.

A credit history is established by borrowing. It starts the moment you apply for your first credit card or take out your first bank loan and builds from there. It’s a record of your credit applications, outstanding loans, payments and anything else connected with borrowing.

Your personal history is reflected in a credit “score” or “rating,” maintained by credit-reporting agencies. Think of this as the “grade” you’ve received for your borrowing practices.

Each time a financial institution grants you credit, it is likely to send details of your credit and payment patterns to credit agencies. These agencies will collect information and make it available to other lenders.

When you want to borrow, lenders check your history and score. Details in your file usually include personal information, employment, banking information, outstanding credit, payment history, legal judgments against you and details of bad debts that have been referred to collection agencies.

The more positive your credit history and score, the easier it is to get credit. Lenders want to know you’re a good risk-that you’ll make payments on time and they’ll get their money back. A good history and rating may also get you better borrowing rates.

The key to maintaining a favourable history is using credit wisely. Borrow responsibly. Don’t take on more debt than you can handle, and make payments on time. Credit cards are one way to get started-get one, use it sparingly, and make payments when you’re supposed to.

And be sure to review your credit ratings and history from time to time. You’re allowed access to records maintained by credit rating agencies. For information on how to check-and a more detailed explanation of credit history-visit the Internet site of the federal government’s Financial Consumer Agency of Canada at www.fcac.gc.ca. Look for the booklet, Understanding Your Credit Report and Credit Score, in the publications section.

Kevin Dorey is a Financial Advisor with Edward Jones. Edward Jones is a member of the Canadian Investor Protection Fund. He can be reached at (902) 826-7982.