Building Good Credit: It Doesn’t Have to Mean Debt

One of the misconceptions that many people have is that building good credit means that you have to get into debt. However, this just isn't true. It is possible to build a good credit history without selling your financial soul and paying interest. But if you want to do it quickly and thoroughly, you will need to use Canadian credit cards.

Why Bother About Building Credit?

It's true that you need you to pay attention to the information in your credit report. Even if you aren't borrowing right now, you need to keep tabs, since someone might have stolen your identity and could be getting credit via fraudulent means. But that doesn't really answer the question of why it's a good idea to bother with building a good credit history in the first place.

The reality is that, at some point, you will need a good credit history. You might decide that borrowing is acceptable in the case of buying a home or a car. If you need to get a mortgage, you will need a good credit history if you want the best terms. (That is, if you aren't turned down outright because of your lack of credit history.) The same is true of buying a car. Without a good credit history, anytime you borrow for bigger expenses, you will find yourself getting the short end of the stick -- and paying more.

Another reason that you need to build good credit is that an increasing number of non-lending financial service providers are interested in your financial history. Insurers and landlords are looking at credit histories in greater numbers, and there are even trends for some employers to run credit checks as part of a background check. You might need a good credit history even if you never borrow a dime.

Building a Credit History Without Debt

The first step to having a good credit history is to avoid missing payments and making late payments. If you make your payments as expected, you won't get much credit (unless it's a loan), but you will be spared black marks. So make rent, utility and other non-credit payments on time and in full. This will help keep negative items off your credit report.

Next, you need to obtain and use credit. The good news is that this doesn't have to mean debt. You can start out with a secured credit card if you don't have enough of a credit history for another type of card. Now that you have a credit card, you need to use it. Swipe your card, and then pay it off every month. You will show that you use credit, and that you can handle making credit payments. Plus, as long as you pay off your balance each month, you won't have to pay interest, and you'll stay out of debt.

Make a Plan

If you want to build good credit, you need a plan. Incorporate your Canadian credit cards into your regular budget plan. Use the card to buy groceries, as usual, and make sure that you keep the money in your checking account so that, when it comes time to pay your credit card, the money is there. It's only when you carry a balance that the debt start to add up and you pay interest. As long as you are paying off your credit card, you can build a good credit history that will open any door -- and stay out of debt while doing it.

Image source: Airodyssey via Wikimedia Commons