Although it may seem arduous, building your Canadian credit file is a marathon, not a sprint. Through good money management habits, your credit file may start thin, but can grow to help you make major purchases like automobiles and homes.
But what if you’re starting out, and could still use a little cash to get started? Even though you may be building your credit from scratch, or rebuilding your file after a bankruptcy or delinquencies, there are banks that are willing to help you achieve your goals. Here’s everything you need to know about finding the best credit builder loans in Canada.
The Best Credit Building Loans in Canada
If you have an objective and purpose in mind for your credit building loan, there’s nothing holding you back from applying for cash, and responsibly paying it off over time. We did the research, and these companies offer you the best credit building loans in Canada.
If you are looking for a loan to help build your credit file, Refresh Financial offers loans for that specific purpose. Through their Credit Builder program, you can apply for a credit builder loan up to $25,000 at an interest rate of 19.99%. You can access the money at any time, and the payments are reported to the credit bureaus – helping you build your credit file, and helping you qualify for better loans over time.
In addition to offering a credit building loan, Refresh Black Tier subscription comes with credit monitoring and alerts, credit simulators, financial education, and perks at over 600 Canadian retailers. These tools are designed to help you monitor your credit, save money, and learn how to build a better financial future.
Another best credit building loan in Canada option is found at Spring Financial. Through an easy approval process, your loan is held in a secure trust account, which you will make payments to throughout the life of the loan. Once you pay the loan off, the cash is deposited directly into your account. Spring also offers even more options to help you build credit: If you make 18 months of payments on time, you could also qualify for a $2,500 unsecured personal loan at 29.8% interest or less!
Score-Up by Marble
For those looking for a comprehensive solution, Score-Up by Marble may be the best credit building loan in Canada. In addition to offering a credit building loan, their monthly subscription comes with credit monitoring and alerts, budget simulators, and achievable goals to hit your target score. The company’s bigger packages include monthly and quarterly coaching with expert credit coaches, helping you achieve your credit goals even faster.
Can A Credit Building Loan in Canada Improve my Credit File?
If you don’t have a robust credit history, a credit building loan can help you improve your credit file. But like all forms of credit, you have to be responsible about it, and build in a way that works with your budget.
Before you apply for a credit building loan in Canada, determine why you want the loan. Think of a credit building loan as similar to a savings account, but instead of earning money over time, you are paying the bank to build your credit file. If you are starting out, or want to rebuild your credit, then a credit building loan may be the right solution.
Next, determine how much you can afford to borrow. Consider carefully how much you earn every paycheck, and how much of that you need to put towards housing, bills, and other obligations. Once you understand how much money is left over, you can determine how much you can realistically borrow.
Finally, make a plan to pay off the loan every month. In some cases, lenders will work with you to find a payment date that works within your budget. By determining not only how much you can pay, but when you can pay it, you will be working to build your credit file responsibly.
What is My Credit Report?
Much like other reports you may receive in your life, a credit report is a review of how you manage your debt. With every bank account, credit card or loan you apply for, two credit bureaus keep track of your lending habits: Equifax and TransUnion Canada.
When a bank or financial institution requests your credit report, they are looking at one of the biggest aspects of your fiscal life: how you manage debt. Your credit report contains several details about how you manage your budget, including how many accounts you opened in the last seven years, your credit limits on each credit card and loan, and if you have made your monthly payments on time. From there, they will make a determination on whether or not they will offer you a line of credit or a loan.
Do I Have “Good” or “Bad” Credit?
Although your credit report will help you determine if you get approved for loans, what most people don’t realize is that they have complete control over what goes into their credit files. Once individuals understand how different situations can affect if they have “good” or “bad” credit, managing your files gets much easier.
The difference between having “good” and “bad” credit is dependent on how you manage your current debt payments. According to Equifax, 35% of your credit score is determined by your payment history, making it the most important factor in determining your credit. If you can maintain a budget and make all your debt payments on time, you can develop a “good” credit file and credit score, opening up opportunities in life. But if you miss payments or go into default on accounts, lenders will look at it negatively, resulting in “bad” credit.
The next most important consideration is how much credit you have available, versus how much you are currently using. If you have low balances on your credit cards and pay more than the minimum every month, your credit file will build, giving you a “good” credit rating. On the converse, if you max out your credit card balances and only pay the monthly minimum, your credit could go into the “bad” category quickly.
The final third of your credit rating depends on how old your credit file is, any judgements against you in public records, and how many credit inquiries you have over the past two years. Although this is a lesser part of your credit file, it’s important to keep your credit inquiries low, and stay out of financial trouble. Having a lien placed on your property or garnished wages can drop your credit rating quickly.
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