Understanding Credit Basics in Canada (for newbies and newcomers)

Understanding Credit — Let’s Start With a Story

Imagine your friend Toms comes to you and asks to borrow $5,000 for three months. It’s the first time he’s ever asked you for a loan. What’s your next move?

Chances are, you’ll stop and think:

• Can I trust Toms to pay me back?

• Has he been reliable in the past?

• Does he handle money responsibly?

You're not just deciding based on the request — you're making a decision based on your relationship and past experiences with him.

Now Think About This:

That’s exactly what banks and financial institutions do when you apply for credit. They don’t want to lose money either, so they look for proof that you’ve handled money well in the past. That proof?
👉 Your credit history.

What Is Credit History?

Your credit history is a record of how you’ve managed various types of credit over time — things like:

• Credit cards

• Student loans

• Car loans

• Mortgages or rent

• Phone and utility bills

• Lines of credit

If it’s a financial agreement where you’ve promised to pay over time, it likely shows up in your credit history.

Think of it like your financial reputation. It tells lenders how likely you are to repay what you borrow.

Credit = Behavior + Responsibility

Your credit history doesn’t just say how much you’ve borrowed — it shows:

• If you paid on time

• How often you missed payments

• How much of your available credit you’re using

• If you’ve applied for a lot of credit recently

• How long you’ve had your credit accounts open

It’s all about your borrowing and repayment behaviour — past and present.

Who Tracks Your Credit in Canada?

In Canada, your credit history is managed by two main companies known as credit bureaus:

1. Equifax

2. TransUnion

Most banks, lenders, utility companies, and credit card providers report your activity to these bureaus, who then generate your credit report and calculate your credit score.

In Summary:

When you apply for a loan or mortgage, lenders are basically asking:
“Is this person a reliable borrower?”
Your credit history is how they find the answer.

Just like your friend Toms had to earn your trust, your credit history helps you earn the trust of financial institutions.