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No Debt Doesn’t Guarantee Good Credit

Getting a prepaid or low-limit credit card and having a healthy credit mix are some of the initial steps that a borrower with no credit history should take.

Some people think that not having any credit is good. Having debt that exceeds credit limits, resulting in an overwhelming amount of money due to creditors, can create stress and look poorly on your credit report. However, being credit-free can sometimes have a negative impact on how your financial situation looks to creditors. Without a history of credit, lenders can’t see if you’re a responsible borrower or not. Having debt doesn’t define how financially stable you are. What matters is that you have debt while being able to manage it effectively. By doing so, you’ll have a better chance of being approved for a loan in the future.

READ MORE: Is All Debt Created Equal?

If you currently don’t have any credit, it’s never too late to obtain it. Having a good mix of credit, both revolving and installment, will better how your credit score looks to lenders if you’re thinking about applying for a loan down the road. Here are three ways how you can build a respectable credit score while remaining debt-free.

1. Get a Prepaid or Low-Limit Credit Card

Credit cards can be difficult to manage as they are a form of revolving credit that often have high limits. High interest rates and added fees are factors of credit cards that should be considered when trying to manage this credit, as charges can add up over time and sometimes make it more difficult to make monthly, on-time payments. If you’ve never owned a credit card before, it’s a good idea to apply for either a prepaid card or one with lower limits. Using prepaid or low-limit credit cards can be a great introduction to how to responsibly manage credit for someone who has never done it before, as it’s common for a person to max out their credit card and struggle to pay it off, which looks poor on a credit score. If reasonable charges for expenses are made consistently and paid in full each month, a person with no borrowing history will be able to build up their credit score quickly. Restricting purchases to under 15 per cent of the limit is also beneficial to incrementally raising your score.

2. Finance a Larger Loan

Financing an auto loan, mortgage or student loan is a good way to show creditors that you’re capable of paying back big-ticket items. These kinds of loans are different than credit card loans, as fixed payments are made monthly and the money isn’t attainable once it’s been paid off. Canada Drives is a respectable auto loan company that has been working with Canadians all across the country since 2010. Canada Drives helps people with both no and low credit find auto financing that fits within their lifestyle and budget. As auto loans are a form of installment credit and some lenders will work with people who don’t have any credit history, this kind of loan can be a great addition to a person’s credit history. If payments are made on-time and in full every month, getting an auto loan is a great way to build credit if you’re starting from zero and want a path towards overall credit strength.

3. Credit Solution Programs

Entering a credit solution program is an option for people who might want assistance managing regular payments. A credit rebuilding regimen by a third-party is often a seamless way of taking the stress out of financial management, especially if it’s your first time dealing with credit. Instead of a self-administered credit card, there are financial credit rebuilding services and products available with expertise that continuously assesses and examines a consumer’s credit score on the path to recovery.

Whether you choose any of these three options, starting to build credit if you don’t have any can sometimes take time as creditors need to see proof that you’ll be able to pay back the loan responsibly. When applying for credit for the first time, documents related to employment history, past residences and utility receipts can help speed up an approval. Additionally, applying with co-signer if you have no credit is a great way to increase your chances of approval, as lenders will feel more confident about approving you for a loan. Credit is a part of life that has a big impact on your financial situation. If you can manage it effectively there’s no question that you’ll reap the positive benefits of it.

READ MORE: 3 Easy Strategies To Pay Off Debt

Canada Drives works with hundreds of Canadians every day, ensuring that they get good quality vehicles with ease and simplicity, regardless of their credit score. Getting approved for auto financing with bad credit can take several days, and even weeks, but Canada Drives’ dealer partners work hard to get applicants the best vehicle and financing options fast. If you need an affordable vehicle and want to rebuild your credit, apply with Canada Drives for free today and learn more!


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