A young friend of mine who shall remain nameless has been complaining to me of his inability to get a credit card. He doesn’t understand why, after holding down a good job for six years, diligently paying rent and meeting his other commitments, he still can’t convince his bank to give him a credit card. To make matters worse, his sister, who is still in university, was issued a card despite the fact that she doesn’t have a job. What gives?
This young lad is a perfect example of a young professional who, in the past, hadn’t bothered to establish his own credit identity.
Everyone needs to have the ability to borrow money. That’s true whether you’re a young adult starting out or you’ve just found yourself in the new role of single parent.
One of the easiest ways to establish your credit reputation is with the help of a co-signer. You’ll be trading on their credit reputation and their guarantee to squeeze your way into the world of credit. Make sure that you have that person’s name removed from the loan as soon as you’ve established your ability to repay so that you’re seen to be standing on your own two feet.
Another relatively simple tactic is to apply for an RRSP loan. Most RRSP providers will be happy to lend you the money you’ll then place inside an RRSP with them without much of a credit investigation. Make your regular monthly payments on-time and voilà: you’ve got a credit history. Just make sure you only borrow as much as you can repay within six months. Then switch those “loan repayments” to regular RRSP contributions.
A secured credit card is another way to get a credit record. The card is “secured” because you put up the cash to cover your balance. Lenders often want twice the credit card limit, so if you want a $500 credit limit, you’ll have to ante up $1,000. Once you’ve established your ability to manage the card—anywhere from six months to a year—you can ask for the security requirement to be dropped and your deposit returned.
Whatever route you take to build your credit reputation, remember that if you use your credit unwisely, it’ll cost you big-time. Repeat after me: Credit is good; debt is bad! Now you’ve got it.