Lesson 23: Building and Maintaining Credit

What is a credit score?

A credit score is a number that helps lenders decide how risky it is to lend someone money.

Your credit score is based on patterns, not one single choice. It looks at how you handle credit over time. This includes whether you pay on time, how often you borrow, and how much of your available credit you use.

A higher credit score tells lenders that you usually pay what you owe and pay it on time. A lower credit score tells them that lending to you might be risky.

If you have never borrowed money before, you may not have a credit score yet. That is normal.

What affects a credit score?

Several habits can affect a credit score.

Paying bills on time is one of the most important factors. Even one missed payment can cause problems, especially when you are just starting out.

Using too much of your available credit can also hurt your score. If your credit card is almost maxed out, it can look like you are relying too much on borrowing.

Using credit for a long time, without problems, can help your score. This means steady, careful use over time.

Applying for a lot of credit at once can lower your score. It can make lenders think you are desperate for money.

Why credit scores matter

Credit scores can affect many parts of adult life.

A landlord may check your credit score before renting you an apartment.

A cell phone company may check your credit before approving a phone plan.

Banks and credit unions use credit scores when deciding on loans for cars, school, or other needs.

In some cases, insurance companies or employers may look at credit history, especially for jobs that involve money.

This does not mean your life is ruined if your credit score is low. It does mean that poor credit choices can make things harder and more expensive later.

Debit cards and credit cards (quick review)

A debit card uses money you already have in your bank account. When the money is gone, you cannot spend more.

A credit card lets you borrow money up to a limit. You must pay it back later, usually with interest.

Debit cards help you stay within your means. Credit cards require self-control and planning.

Many people find debit cards safer when they are young or just starting out.

Getting credit for the first time (in Canada)

Not everyone has the same access to credit. Some people have family support. Others do not. That is okay.

Here are some common ways young people in Canada first access credit:

A student credit card often has a low limit and fewer requirements.

A secured credit card requires you to deposit your own money first. This reduces risk for the lender.

A co-signer can help you qualify for a loan, but it also puts them at risk if you do not pay.

Some people choose not to get credit at all right away. That can be a responsible choice.

Credit is optional, not required

You do not need a credit card to be an adult.

You do not need a credit card to be responsible.

You do not need a credit card to be successful.

Credit should only be used when it makes sense for your situation. It is okay to wait. It is okay to say no.

Many people choose to have only one credit card with a very low limit. Some only use it for emergencies. Others never get one at all.

Borrowing responsibly

Responsible borrowing means borrowing with a clear plan.

Before borrowing, ask yourself:

• Do I really need this?

• Can I afford the payments?

• What happens if my income changes?

You have learned before about good debt and bad debt. Good debt often helps you build skills or stability, like education. Bad debt is usually for things that lose value quickly.

Even good debt needs to be respected. All debt comes with responsibility.

A short example

Jordan just finished high school and started working full time.

Jordan is offered a credit card with a low limit. Jordan decides to use it only for emergencies and pays it off every month.

Later, Jordan needs a car for work. Because Jordan paid bills on time and borrowed carefully, it is easier to get approved for a small loan.

Jordan did not rush into credit. Jordan used it slowly and carefully.

Final thought

Credit can open doors, but it can also close them.

The goal is not to build credit as fast as possible. The goal is to make choices that protect your future self.

Using credit responsibly, or choosing not to use it at all, are both valid paths.