Discover the significance of credit and how it influences your financial opportunities in Canada. Learn practical strategies for establishing and managing credit as a young newcomer, paving the way for a secure financial future.

What is Credit and Why is It Important?

Credit is the Latin word “Creditum” which means to “trust” or “loaned”. Credit is borrowing money or buying something now and paying for it later. It’s like when you ask a friend if you can borrow their toy or if you can have a cookie now and promise to give them back later. In the world of money, credit is a way for people, businesses, and even governments to borrow money or use goods and services without paying for them right away.

Credit: Borrow now, repay later

Credit History

Credit history is crucial for younger individuals as it represents a record of past borrowing and payment activities, significantly enhancing approval prospects for loans and credit cards, which serve as a means to access desired goods or services while spreading payments over time.

Types of Credit

Single-payment credit

Items and services are paid for in a single payment, within a given time period, after the purchase. Interest is usually not charged.

• Utility companies, medical services ● Some retail businesses

Installment credit

Merchandise and services are paid for in two or more regularly scheduled payments of a set amount. Interest is included. A repayment plan is drawn up in the form of a conditional sales contract based upon fulfilling a number of conditions of the contract.

Some retail businesses, such as car and appliance dealers

Consumer loans

Money may also be loaned for a special purpose, with the consumer agreeing to repay the debt in regularly scheduled payments.

• Chartered banks
• Consumer finance companies
• Credit unions
• Trust companies

Revolving credit

Many items can be bought using this plan as long as the total amount does not go over the credit user’s assigned dollar limit. Repayment is made at regular time intervals for any amount at or above the minimum required amount. Interest is charged on the remaining balance.

• Retail stores
• Financial institutions that issue credit cards