If you’re new to Canada, a young person just starting out financially or someone who has been through some credit troubles in the past through bankruptcy or a consumer proposal, you know it can be difficult to build a credit history and improve your credit score.
But there is a way you can save money and build your credit to get you on the road to a better financial future. It’s called a Savings Loan.
What is a Savings Loan and how does it work?
A Savings Loan is designed to help you grow savings and build your credit score, no matter what your credit history is. A set payment amount gets put into a secured account. You then make affordable payments on a set schedule toward this amount. Your regular, on-time payments get reported to the credit bureau, building your credit score with each month that goes by, while you grow your savings you can then use later.
Is it right for you?
Sometimes, Canadians with low or no credit history get declined for personal loans and have access to secured credit only. So, to get a secured credit card, for instance, with a $1,500 limit, you need to have that amount already as security for the lender.
But what if you don’t have the money to offer for a deposit? That’s where the Savings Loan comes in! It lets you break the cycle of not being able to get credit. And, if you can’t get credit, you can’t move to a higher credit score and eventually get other kinds of loans and credit cards with lower interest rates.
Even if you have been approved for another loan, a Savings Loan can be a steadier way to build credit and grow some savings in the meantime.
What are the advantages?
- It builds your credit score. Making regular payments on time and over time will help raise your credit score because it shows your commitment and ability to pay, which will then make it easier to get other forms of credit at lower interest rates.
- It gives you discipline to save. If saving has been difficult for you in the past, a Savings Loan is a way to develop the habit of saving money. And that is a habit worth developing!
- It raises your self-confidence. When you know you have taken a solid step towards saving and raising your credit score, you build the confidence to make smart financial decisions in the future.
- You have money at the end. Once you’ve finished your payments, you have savings that you can use to get a secured credit card and keep building your credit, or you can use those savings to help get out of debt.
If you’re looking for a great way to get started on a path to better credit, easyfinancial carries a secured savings loan program called creditplus. You don’t have to provide any money up front, but funds are placed into a secured account that you can access later. A portion of your payment helps build savings while the interest charged lets easyfinancial treat it as a loan and report all your payments to the credit bureau to build your credit score.