WELCOME TO THE WORLD OF CREDIT
Are you a young adult just beginning to build a credit rating and explore your borrowing options? Or a newcomer to Canada wondering how to establish credit in a new country? Whatever your background, it's important to understand how credit is measured, how to manage credit wisely, and why your financial institution or lenders need to have an accurate reflection of your borrowing and repayment history.
THE ABCS OF CREDIT
Translating credit terms
Credit: Your ability to borrow money from a lender to pay for goods and services.
Lender: Otherwise known as a creditor, a lender is typically a financial institution but can also be a retailer or other service provider.
Credit history: An objective measurement of your record of repaying loans, along with any applicable financing or interest charges. Your eligibility to borrow money is based on your credit history.
Credit score: A tool, lenders use to predict your future fiscal responsibility. The higher your score, the more responsible you’ve shown yourself to be with credit. Jump down to learn about your credit score.
HOT TIP: A good credit score is very valuable, as it means your lender has confidence in you. That trust becomes important when you are applying to finance major purchases, such as a mortgage for your home.
Credit card: A payment card that allows you to make purchases. Unlike debit cards, which make payments using money from your bank account, credit cards use credit to make purchases, meaning you must repay what you borrow.
Line of credit: A revolving account that allows you to repeatedly withdraw and repay money.
Loan: Money you borrow and pay back with interest over a set period.
HOT TIP: Loans and lines of credit can either be secured or unsecured. A secured loan or line of credit uses assets you own, like cash or your home, as collateral. Because of this, secured borrowing solutions come with extra benefits like higher credit limits and lower interest rates (depending on the type of collateral you use). Unsecured borrowing solutions tend to have a lower credit limit and higher interest rate, as no assets function as collateral.
Collateral: Property or other assets pledged by the borrower as security for the repayment of a loan, to be forfeited in the event of a default.
Annual fee: The yearly fee you are charged for holding a credit card (not all credit cards charge an annual fee).
HOT TIP: Cards with annual fees can be beneficial, since they typically offer higher rewards and benefits. However, cards without an annual fee, such as our SCU Collabria Cash Back Mastercard®, make sense if you don’t intend to use the card often, or if you’re just building credit.
Annual percentage rate (APR): The interest rate you’ll be charged if you don’t pay off your entire balance by the end of each billing cycle.
HOT TIP: Most credit cards charge high interest rates (around 19.99%), so if you intend to hold a balance on your card, you may want to look for a card option with a lower interest rate (like our SCU Collabria Classic Mastercard®). Or talk to us about a line of credit, which offers a much lower interest rate.
Cash advance: Money withdrawn from your credit card account. Cash advances can be costly, as credit card providers will usually charge higher interest rates and fees on the withdrawal, and interest is charged daily from the time you withdraw the cash until you pay off your balance. If you do need to make a cash advance for an emergency, make sure you can pay it back quickly.
Credit limit: The maximum amount you can borrow with your card.
HOT TIP: Although your credit card provider may offer to increase your credit card limit, you can also choose to keep a lower limit to help minimize spending.
Grace period: A period during which, if you pay your full balance by the due date, you won’t be charged interest on credit card purchases. This grace period will apply to new purchases, even if you carry a balance from the past month.
Billing cycle: The amount of time between credit card statements. Your billing cycle affects your grace period and the timing of when you need to make payments. You can find this by checking your monthly billing statement or viewing your credit card account online.
Minimum payment: The lowest amount you must pay every month to avoid penalties. It’s essential to make the minimum payment, but it mainly covers your insurance cost, so try to pay above that on your balance.
HOT TIP: Use our
cost of debt calculator to determine just how expensive interest-only payments can be.
HOW YOUR CREDIT SCORE IS CALCULATED
Your credit or FICO score is calculated by Canada’s two official credit bureaus: Equifax and TransUnion. These institutions keep records of all your transactions over your lifetime.
The data used to calculate your score includes your credit mix (the types of credit you hold), along with your credit history. This data also includes how much debt you currently hold, your payment history on that debt, and the length of time you have been using credit. Other factors include the amount of credit you are seeking at one time, if you have any public judgments against you for failure to repay debt, or if any collection agencies are seeking unpaid bills such as utility or credit cards.
A credit score will be measured in points, on a scale of 300 to 900. Your score directly affects how much money you can borrow, and how high the interest rate you’ll have to pay.
| FICO Score |
Credit Rating |
| 300 to 599 |
Very Poor |
| 600 to 649 |
Poor |
| 650 to 679 |
Fair |
| 680 to 719 |
Good |
| 720 to 749 |
Very Good |
| 750 to 779 |
Excellent |
| 780+ |
Excepptional |
While we use your credit score as a tool to understand your lending behaviours, all our lending decisions are made locally. This means you’ll work closely with a lending specialist who will provide you with advice and guidance to ensure you borrow wisely.
Can I track my credit score?
Many consumers are now more credit-aware than ever before. In fact, checking your own credit score is a good idea. Research shows that people who check their own credit score are more likely to improve it.
One way to review your credit score is to go directly to Equifax or TransUnion. This may require paying a fee to access your credit, though you will usually be able to receive one free report each year. When you check your credit report, look for any errors in the reporting of your credit and history and report them immediately to a credit bureau.
You can obtain your credit report by calling the credit bureau and following their instructions:
Equifax Canada: 1.800.465.7166
TransUnion Canada: 1.800.663.9980
READY TO TAKE THE NEXT STEP?
Everyone benefits from establishing and improving their credit. And everyone faces financial stress at some point in life, whether that's a change in your job, an increase in your bills, or an unexpected home or car repair. Meeting with a lending specialist is a wonderful opportunity for you to ask questions and explore all your borrowing options, so you have all the tools you need to make the right decisions that make the most sense for you.
Book an appointment online today or call us at 1.800.728.6440 and explore your options with SCU.
