Whether you are new to Canada, young and just starting to build credit, or are in a credit rebuilding situation as a result of previous personal finance circumstances, there are still ways for you to purchase a vehicle and build your credit score. Before jumping into a car loan with crazy high interest rates, let’s take a few steps back and start from the beginning.
What is a Credit Score?
If you are new to Canada and aren’t familiar with how credit history works in this country, understand that a lot of what we do financially is based on your credit rating. In simple terms, a credit score is produced via a credit report based on your history of borrowing money from lenders or other things in life that involve finances, such as a personal loan, or car loan, and your payment history with bills such as credit cards and cell phone bills. Your relationship with these lenders and companies is reported to various Canadian credit bureaus such as EQUIFAX and TransUnion. A credit score is then used by lenders to qualify you for your auto loan, line of credit, etc. to determine the risk of lending you money.
That is not to say that if you have zero credit or poor credit you won’t qualify for a car loan; it just means it will most likely come with higher interest rates leading to higher loan payments. For lenders, it is all about your creditworthiness; the better credit you have, the lower interest rates you will get, and vice versa; if you have bad credit, it usually results in high loan terms.
Can Everyone See Your Credit Score?
The short answer is, no, but there are quite a few businesses that can view your credit history, such as financial institutions, cell phone providers, retailers when applying for a new credit card through them, insurance companies, governments, employers, and landlords. With that being said, only certain ones can do a hard inquiry credit check, while others can only perform a soft credit check.
Rest assured, before your credit history is pulled, your permission must be given. Listen carefully though because the provinces of Nova Scotia, Prince Edward Island, and Saskatchewan only need to verbalize they are pulling it. In all the other provinces in Canada, you must provide written consent for them to look at your credit report.
Building Your Credit
When it comes to personal finances, your number one goal should be having excellent credit. When you are considered a person with a good credit score, it makes borrowing money that much easier and cheaper. Don’t beat yourself up though, if you aren’t there - yet. Here are some simple tips to get your score up and in a better position for receiving credit products.
Pay your bills - this may sound like a no-brainer, but you would be surprised at how many people don’t make their monthly payments. And, FYI, it’s not enough to just make your payments, you need to make your payments by the due date. In some cases, every late payment is reported to the credit bureaus, while in other cases, it’s only reported after a few are made. Either way, it’s better if you make on-time payments for all your bills and always try and make more than the minimum payment.
Be smart - be smart with how you spend your money. Lenders don’t just look at what your credit score is; they look at how you manage your money. Just because you have high credit limits, doesn’t mean you should use it. A major factor that is taken into consideration by dealerships and other lenders is your credit utilization, which is how much of your available credit you are using. For example, you may have a great credit score but if you have a $10,000 limit on one of your credit accounts but the balance is $9,788, you could be considered high-risk. Whereas someone else may have a low credit score and that same $10,000 credit limit may only have a $100 credit card balance, making them more financially responsible.
Pay attention - pay attention to your credit report. From time to time, request your report from EQUIFAX or TransUnion and look at it in detail - even if they make mistakes sometimes. If you see something on it that doesn’t make sense, be sure to report it. By not reporting errors, it only impacts you.
Don’t be a credit chaser - what we mean is, don’t chase credit. Whether you qualify for different types of credit accounts or you get denied by multiple; STOP applying. Every time you apply for a credit account, it flags the credit bureaus, and if they are flagged enough, you become known as a major credit chaser, meaning you aren’t financially responsible enough to manage your finances and therefore need credit to pay your bills, which you can imagine doesn’t bring comfort to lenders.
Getting a Car Loan
The good news is that no matter what your credit score is, auto loans are one of the easiest loans to qualify for. Yes, they do come with a price that varies based on your score, but it is still possible, which is step one. You can even get approved online with FFUN Cars to see what kind of loan terms you are eligible for. Side note; to buy a car from FFUN Cars you don’t even need to leave your house, you can do it all online, or in-store; it’s up to you and it’s one of the many benefits of purchasing a vehicle from us.
Back to getting a car loan. In the dealership car loan world, a credit score of 660 and above is usually good enough to get you some pretty great loan terms. A score of 560-629 is considered fair but still makes it pretty easy to get decent terms. Anything below that, most likely requires a cosigner, and if you don’t have a cosigner, it’s best to come with a down payment. Having a down payment makes getting a car loan a bit easier because you are asking to borrow less money to finance your vehicle. The great news is, having a car loan can help build your credit rating and if your original loan terms are less than desirable, you can always look at refinancing them down the road once your credit has improved.
Time to Get a Vehicle
Now, that you have learned all about building your credit score and getting a car loan in Canada, it’s time for the fun stuff; buying the car. We’ve got an even better way of buying a car. How you ask? Well, let us tell you. As we already mentioned, you can buy your car online or in-store, or even a combination of the two. We have a ONE promise: One person, meaning you’ll only deal with one person through the entire process. One price; yep, no haggling. The price you see is the price you pay because all of our “salespeople” are non-commissioned so it’s about finding the best vehicle for you. One hour. You better believe it; we will get you in and out in one hour or less. Come on, tell us that doesn’t sound amazing. We’ll wait. Give it a try by playing around online with our online loan calculator or browsing our inventory. Want to go old school? Come down and see us in person at FFUN Cars.
