Credit is what you use to buy something when you don’t have the money for it. You borrow the money and usually pay it off over time. Interest rates, credit scores, and your credit history are important parts of financial literacy!
Be sure to think about how you will pay it back and what it will cost to borrow before you buy or sign up.
What is credit?
Credit can be a loan, an overdraft, a line of credit, or a credit card. It’s an agreement between you and a financial institution or a store. There will be terms like how much you borrow, and the cost to pay it off.
Read the fine print!
What is interest?
Interest is the cost to borrow money. If you have a credit card, it’ll be a percentage that you pay on the balance every month. Interest rates are decided by the lender (like Visa or MasterCard) and is above and beyond the cost of the item.
Interest rates depend on your credit history, and the lender. They range from 0% up to as high as 29.9%. Make sure you add the cost of interest to your purchase price before you decide to use credit.
Watch out for credit offers of 0% for a limited time. They can jump up as high as 29.9% as soon as that time period ends!
When you take longer to pay off credit, your monthly interest fees (charges) grow!
Pay day loans have extremely high interest rates. Some can be up to 400% annually!
What is my credit history?
Credit companies keep a record of your history when you get a loan or a credit card called your credit history. It’s made up of all your credit purchases, like loans, credit cards, phone plans, or monthly bills.
Credit history is a record of your payments. If they’re made on time, and with at least the minimum payment, you’ll have a good credit rating.
Your employers and number of housing moves will often show up on credit histories as well.
Your credit history impacts the interest rate that you’ll be given. It’s important to:
- Pay your bills on time – even if it’s just the minimum amount.
- Try to keep a low amount owed
- Don’t keep too many credit cards
- Keep in touch with debt companies.
Landlords and employers may check your credit history prior to making their decisions.
How do I find out my Credit History?
You can request a credit history report once a year from Equifax and TransUnion, the agencies that track credit histories. Once per year, you can access a free credit report.
- TransUnion's Online Consumer Disclosure website allows you to download your report for free, and also provides info for their offices if you'd like to go in person. You can also call them at 1-800-663-9980.
- Equifax Canada will send you a report for free if you send a written request with photocopies of ID in the mail. Download the form here. You can also access it online instantly for a fee. Their number is 1-800-465-7166.
- Credit Karma is a website and an app you can download offering free credit scores, reports, and tools.
Should I borrow?
If you think carefully about credit and debt, you’ll likely make good decisions about your financial future. Some loans are better than others, like a student loan which has low interest and longer term payment plans.
For small purchases, carefully consider your budget and save until you have enough money to meet your goal. Your credit will always follow you, so treat it with care!