Establishing credit in Canada can be an uphill battle, particularly for newcomers, young adults, and those recovering from financial setbacks. Qualifying for traditional credit products can be difficult without a strong credit history, as building credit requires time, financial discipline, and the right tools.
Fortunately, innovative programs like KOHO and Borrowell have emerged to serve as alternative credit options. This review illustrates some of the best credit-building programs in Canada, their features and benefits, and how to choose the ideal program.
What Is Credit Building?
Credit building is the process of establishing or improving an individual’s credit history through responsible credit behaviour. Credit products, such as credit cards, loans, and alternative programs, are among the ways to build credit.
Credit building aims to establish a strong credit history to secure financial products like loans, mortgages, and lower interest rates. Credit-building options in Canada include secured credit cards, loans, and credit-building programs from companies like KOHO and Borrowell.
How Credit Scores Are Calculated in Canada
According to Equifax Canada, there are several factors involved when calculating scores in Canada. Below is a general breakdown of the factors that different scoring models consider:
- Payment history: ~35%
- Used credit versus available credit: ~30%
- Credit history: ~15%
- The number of inquiries into your credit file: ~10%
- Public records: ~10%
Each credit bureau has multiple scoring algorithms, but most lenders often ask only for them when making decisions. All score versions have a similar purpose: to predict a borrower’s ability to pay their loans, but there are differences in the calculations.
Best Credit Building Programs in Canada
Canada has a variety of credit-building programs aimed at helping individuals boost their credit scores and access better financial opportunities.
KOHO Credit Building
KOHO Credit Building is a simple and secure tool that helps improve your credit history without relying on a traditional credit card. It works by setting up a small line of credit and reporting on-time payments to Equifax. KOHO sets aside a portion of the credit each month and automatically reports it as an on-time payment.
The KOHO Credit Building tool costs $5, $7, or $10 monthly, depending on your account type. It’s a budget-friendly option that offers guaranteed approval without the risk of paying interest or accumulating debt. It also includes access to financial coaching, making managing your money and improving your financial health easier.
By consistently reporting payments to Equifax, KOHO helps you establish a reliable credit history that can lead to long-term financial benefits. With a stronger credit score, you can avail yourself of lower interest rates on loans, better mortgage options, and higher chances of approval for other financial products.
KOHO Credit Building
For a low monthly fee, build your credit score in one of three easy ways.
Monthly fee: $5 to $10 (depending on which KOHO Mastercard you have)
Free transactions: Unlimited debits and Interac e-Transfers.
Sign-up bonus: Earn $20 in cash back when you make a purchase within 30 days of registering.
Interest earned on deposit: Up to 4.00% interest rate, plus earn up to 5% unlimited cash back.
On KOHO’s website
Secured Credit Cards for Building Credit
Secured credit cards offer a practical choice for building credit and achieving financial stability. They work like regular credit cards but require a security deposit as collateral when you open an account. The deposit reduces the lender’s risk, making qualifying for them easier than with other traditional cards.
Neo Secured Mastercard
Neo Secured Mastercard lets you build your credit history while earning instant cashback. For $5 a month, you can start building credit history safely through on-time payments, monitor your credit score in the Neo app, and access your real-time data from TransUnion.
Signing up requires no hard check, and approval is guaranteed. Your credit limit is equivalent to the security deposit (a minimum of $50) you have set aside. When you make on-time payments and promptly pay off your balance, Neo Financial will report it to TransUnion and Equifax, resulting in an improved credit score.
Secured Tims Mastercard
Another option to build your credit is through the Secured Tims Mastercard. This secured credit card requires no hard credit check, except if you’re a Quebec resident, and comes with no annual fee. When you use your Secured Tims Mastercard, your on-time payments are reported to major credit bureaus, helping you to build your credit history and improve your credit over time.
To apply, choose the secured card option and provide a refundable security deposit of at least $50. You can add the card to your Apple Wallet or Google Wallet for convenient mobile payments. Build your credit by making on-time payments and keeping your balance low. Plus, earn points on all purchases, with bonus points on essentials and 50% more points.
Credit Building Loans
Credit building loans are designed to help individuals with little or no credit history establish or improve their credit scores through fixed payments to a lender. These payments are then reported to credit bureaus, helping them build a positive payment history and improve their credit scores.
Below are two of the best providers of credit building loans:
Loans Canada
Loans Canada, an online platform that connects borrowers with lenders, offers credit-building loans that help establish or improve their credit history. Amounts range from $500 to $5,000, with repayment terms of up to 5 years. Depending on the lender and the borrower’s credit profile, interest rates can range from 9.99% to 35%.
To sign up, go to the Loans Canada website, browse the available loan options, and choose the loan category that suits your needs. Click the “Apply Now” or “Get Started” button and complete the application form. After submitting your application, review the loan offers and choose your preferred lender. Complete the loan process.
Loans Canada
Loans Canada is a loan comparison platform for all kinds of personal loans, car loans, debt consolidation loans, and bad credit loans. It has partnerships with some of Canada’s largest lenders and offers free access to your Equifax credit score.
Interest rate: 6.99% to 46.96%.
Loan term: 4-60 months.
Maximum loan amount: Up to $50,000.
FatCat Loans
FatCat Loans, a platform that connects borrowers with a network of third-party lenders, offers various loan options that can be used to improve credit history.
Loan amounts range from $1,000 to $50,000. Interest rates range from 4.84% to 35.99% APR, with payment terms up to 84 months.
To apply for a loan, go to the FatCat Loans website and complete the online application, making sure to provide the required information. All credit histories are welcome. Furthermore, there are no hidden charges or fees, and cash loans can be received on the same day.
FatCatLoans
FatCatLoans is a Canadian loan comparison website. They take the work out of searching for a loan as they search the market to find trustworthy instant loan lenders. Get up to $50,000 with a personal, installment, bad credit, and debt consolidation loans.
Interest rate: 6.99% to 46.96%.
Loan term: 3-60 months.
Maximum loan amount: Up to $50,000.
Eligibility: Resident of Canada and the age of the majority in your province or territory, have a regular source of income, and an active bank account.
On FatCatLoans’s website
Other Credit Building Programs
Alternative credit building programs are designed to assist borrowers, especially those with limited or poor credit histories to improve their credit scores. These programs usually focus on tools that help people demonstrate responsible borrowing and repayment habits.
Borrowell Credit Builder
Borrowell’s online platform features Credit Builder, a secured installment loan requiring 36 monthly payments. Upon completion, your full savings are returned to you. Choose from three Credit Builder options: Starter ($10 monthly), Plus ($30 monthly), or Pro ($50 monthly).
All payment activity, both on-time and missed, is reported to Equifax Canada. Each on-time payment strengthens your credit profile. Borrowell Credit Builder particularly benefits Canadians working to establish credit history or diversify their credit portfolio with different account types.
Spring Financial: The Foundation Credit Builder
The Foundation is a credit-building tool available to Canadians regardless of credit history, income or debts, with a 100% approval rate. When you use the Credit Builder program, you must make small payments over 12 months. After this period, you get access to your savings with $750.
Aside from reporting your on-time payments to Equifax Canada and TransUnion Canada, The Foundation also includes your free Equifax credit score to enable you to monitor your progress each month. Once you complete The Foundation, you’re guaranteed approval for a $1,500 cash advance loan at 18.99%.
How to Choose the Best Credit Building Program
Selecting the right credit-building program can make a significant difference in building your credit. Start by assessing your current credit situation to determine whether you need a secured credit card or a credit-builder loan. Then, check that the program reports to the major credit bureaus to ensure that you contribute to your credit history.
Likewise, consider the fees, interest rates, and other potential hidden costs in order to minimize unnecessary burdens. Check for providers offering added features, such as free credit scores, credit monitoring, and financial education.
How to Build Your Credit Score in Canada
Having a strong credit score in Canada is essential for obtaining loans, renting property, and getting better financial opportunities. Follow these steps to establish and maintain a solid credit history.
- Start with a credit account. Begin establishing credit by opening a secured credit card or a credit-building loan from providers like KOHO and Neo.
- Pay bills on time. Making on-time payments is crucial in building your credit. Maintain good standing by paying at least the minimum amount due on your utility bills, loans, or credit card balances.
- Monitor your credit report. Obtain a free credit report from Equifax or TransUnion to check your credit profile and find errors. Dispute any inaccuracies to avoid potentially damaging your credit score.
- Manage credit utilization. Keep your credit usage below 30% of your total limit, as high utilization may suggest financial risk and negatively impact your credit score.
- Diversify credit types. Use a mix of credit products, such as a mortgage, installment loans, and credit cards, to show your responsible borrowing and improve your credit profile.
- Limit credit applications. When you have too many credit inquiries in a short period of time, it reduces your credit score. Apply for new credit only when necessary to avoid unnecessary hard credit checks.
By following these best practices, whether you’re looking to improve your credit profile or qualify for better financial products, you can steadily build your credit score in Canada and strengthen your financial future.
Conclusion
The best credit building programs in Canada offer diverse solutions for those seeking to establish or rebuild their credit history. Depending on your situation, options like KOHO’s credit building tool, secured credit cards, credit-building loans, and alternative programs like Borrowell each provide advantages.
Utilize these programs responsibly to improve your credit scores and build financial stability.
Related:
