As a student, you may have experience with debit cards, which allow you to purchase goods and services and withdraw cash from an ATM. But how familiar are you with credit? As a new student, you often start out with no credit, but it’s important to start taking steps to build your credit now so you can apply for low-cost loans and mortgages in the future.
3 Ways Students Can Start Building Credit
1. Apply For a Credit Card
As a student, you can take your first step towards building credit by applying for a credit card. Most of the major banks make it easy to apply for credit and offer a special no-annual-fee credit card for students.
Tips on How to Use Your Credit Card Responsibly
- Read your credit card agreement and get familiar with the late payment fees, interest rates and due dates for payments.
- Make your credit card payments on time.
- Don’t simply make the minimum payments; pay down your card fully every month.
- Don’t max out your card, as it affects your credit rating.
- Stay below your credit limit and try to use no more than 30% of your total available credit each month.
- Check through your statement for accuracy and contact the bank if there are any transactions you don’t recognize.
- Report a stolen or lost card immediately.
2. Use Rent Payments to Boost Your Credit Rating
Your rent is one of your biggest monthly expenses, and when managed properly, these payments can go a long way toward building your credit. Use the Landlord Credit Bureau, Borrowell or Billi Boost to have your rent payments reported to the main credit bureaus. This way, you can build up your credit transactions and watch your credit score increase at the same time.
3. Get a Bad Credit Car Loan
When you have a limited credit history, it can be difficult to get a traditional car loan from the bank. In such cases, you can apply for a bad credit car loan from a non-traditional lender.
Where Can I Get a Bad Credit Car Loan?
Most car dealerships work with third-party lenders to find bad credit car loans for their clients. Bad credit car loans are perfect for people with a poor credit history, including:
- Students
- Newcomers to Canada
- People with a low credit score
- Individuals who have filed for bankruptcy
It is much easier to get approved for a bad credit loan. However, the cost tends to be quite high.
What Is The Interest Rate for a Bad Credit Car Loan?
When you apply for a car loan, your lender will factor in the following when setting your interest rate:
- Your financial stability and employment history
- Your ability to repay the loan
- Your payment history
- Your credit score
Your credit score is used to predict the likelihood that you can repay a debt. A short credit history, missed or late payments, bankruptcy, and limited credit use all impact your credit score.
The Credit Bureau Equifax defines credit scores according to the following model:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
If you have a credit score that sits below 600, you are likely to be viewed as a risk. In such cases, the lender may charge interest rates as high as 46%. Those with a credit score higher than 700 tend to fare much better, with interest rates closer to the current prime rate.
Shop Around For the Best Car Loan Interest Rate
Because of the variation in interest rates, it’s essential to shop around to get the best rate. Choose a car dealer that works with several lenders; they can do a soft credit check to get pre-approval and confirm the details of your loan. Soft credit checks do not impact your credit score, so take your time and research your financing options before committing to a lender.
Factors to Consider When Choosing a New Car
When you’re ready to buy a car, make sure you consider the following:
What Are the Total Costs?
Once you get pre-approved for a bad credit auto loan, don’t max out the budget. In addition to the cost of the car and interest payments, you also have to factor in gasoline, insurance, and maintenance fees.
Can You Afford to Make the Payments?
As a student with a limited income, you might consider drawing up a budget to better manage your finances. Use our car loan calculator to determine how much you can pay for a car each month.
Offer a Down Payment
Lenders appreciate borrowers who can offer a down payment; it gives a good impression and can help you to get better loan terms. Make a plan to save up some money before you purchase a car. Adding a down payment reduces your loan amount, reducing the interest fees you have to pay.
Get a Cosigner For Your Loan
If you have a friend or relative with a solid credit history, asking them to cosign a loan with you can greatly increase your chances of getting approved. Lenders are more willing to approve loans that have a cosigner because they can seek repayment from them if you fail to make payments.
Get Pre-Approved For a Loan
To get pre-approved for a loan, you may need the following documents. Lenders requirements do vary, so keep them close, in case they ask.
Proof of identity – Canadian Passport, Canadian Drivers Licence, Permanent Resident Card
Proof of residency – Permanent Resident Card, utility bill with full name and address
Proof of employment – Letter of employment, T4 slip, pay stubs
Proof of Income – Pay stubs
Proof of financial standing – Several months’ worth of bank statements
Once you have this information, apply for pre-approval online.
Tips to Build Your Credit and Not Hurt It
Once you have your auto loan, you must pay your monthly loan payment, or the lender may repossess your car, and your credit score will fall. Always:
- Make your loan repayment in full and on time.
- Set an auto payment so you don’t forget.
- Live within your budget so that you know you’ll have enough money to pay off your loan.
The same is true for your other payments too. Credit card payments, cellphone bills, and utility bills can all appear on your credit report, so you need to pay them all on time so you build your credit and don’t hurt it.
Become Financially Responsible
It is important to build good financial habits when you are young. These habits start with:
- Not overspending and living within your means
- Working with a budget
- Saving money
- Using lines of credit responsibly
- Taking on extra work over the summer to pay down debt
When buying a car, keep your borrowing costs low. Don’t buy a car with all the bells and whistles; buy something that gets you from A to B, keeps you warm in the winter, and is reliable. If you make any extra money, consider using it to pay down your car loan more quickly.
Tips to Help Students Save Money
When juggling finances and trying to pay off your bills, it pays to be thrifty with your cash. Here are some tips to keep your bills paid and your finances in check.
- Shop at vintage clothing stores. Not only will you look really cool, but your bank account will be better for it.
- Take advantage of student discounts which are offered at many stores.
- Buy groceries and make your own food, as this is cheaper and healthier than eating out.
- Have a Netflix party with friends rather than going out partying.
Keep Your Eyes Open for Free Money
There are plenty of grants and scholarships that Canadian post-secondary students are eligible to apply for to keep money coming in while you focus on your studies. Carve some time out every month to apply for as many scholarships as possible. While some scholarships only require basic information in their application and offer gift cards as a prize, the more challenging opportunities offer cash. This might seem like a tedious task, but $250+ for a few hours of work will turn out to be a pretty good deal!
Get Your Car Loan In Edmonton
Insta Auto Solutions is your Alberta Auto Financing Specialist. If you have bad credit or no credit, our finance department will work with you to secure a loan. We have a large inventory of cars, trucks, and SUVs, so browse our inventory online and come in for a test drive today!
