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A Student’s Guide to Building a Strong Credit Score

If you’re starting to use credit - whether it’s with a credit card, student loan or other form of credit - you’re in a good position to start building your credit history early. And having a strong credit history will help you establish a good credit score.

Your credit score is a reflection of your ability to borrow money responsibly. Many people may need to look at your credit score to assess your financial health; a potential landlord, the phone company, or a new lender. Needless to say, the higher the score, the better!

How to build - and maintain - a strong credit history

Your credit score is calculated based on a number of specific factors. Here are the five primary factors that affect your score, as well as some key ways to ensure you start out on the right foot.

1. Your payment history

Whether or not you pay your bills on time is the most important factor in your credit score. That’s why you should try to pay them by the deadline – even the ones that seem small and insignificant.

If you think you will have trouble paying a bill, consider getting overdraft on your account. When you have overdraft protection, your bank will cover any shortfalls (up to a certain limit), which protects your credit rating.

Tip: Make sure you can afford to pay back any money you borrow. Otherwise, you could end up hurting your score by taking on more debt than you can handle.

2. How much you owe

If you’re close to your credit card limit(s), you’re at a higher risk to your lender. While it’s always best to pay off your credit card balances in full, making at least your minimum payments is a must.

Try to use less than 35% of your available credit limit. For example, if you have a credit card with a limit of $2,500, try not to carry a balance more than $875 (35 percent of $2,500).

3. Your length of credit history

The longer your history, the more accurate your credit score will be. If you’ve just started using credit, your score will be lower… but you can build it over time, and starting now will put you in good shape to borrow for larger items down the road.

4. Credit applications

If you apply for more or new credit often, it could be a warning sign to lenders that you’re having some financial difficulty. Limit the number of times you apply for credit in a short period of time.

From time to time it’s a good idea to review a copy of your credit report to make sure it’s accurate and up to date. You can do this by contacting either of the two credit agencies in Canada: Equifax or Trans Union.

5. Types of credit

Having different kinds of accounts show you have experience managing a mix of credit. This is a fairly minor factor to your score, so it’s not worth opening additional credit accounts simply to add depth to your credit mix.

If you want to learn more about how you can build, maintain, or even repair your credit score, speak with an RBC Credit Specialist at any time by calling 1-800-769-2511.

Tip: Consider keeping an older account open even if you no longer need to use it (especially if there is no annual fee). Use it from time to time to keep it active.