In order to purchase a home, you must have an established credit history. Each time you pay a bill (for your credit card or for a monthly service such as your telephone or electricity), you are establishing a credit rating for yourself. A credit rating is a number or score that banks, mortgage companies, and other lending businesses use to assess your level of financial responsibility.

Paying your bills on time every month, contributes to having a good credit rating. If you miss payments, or are often late making your payments, your credit rating is probably not as good, and money lending institutions will consider this when you apply for a loan.  Numerous factors contribute to your overall credit score, such as outstanding debt, payment history, severity and frequency of derogatory credit information, and the amount of credit you use compared to what you have available.

Also important is the length of your credit history. For many immigrants, this only begins after entering Canada.

To begin to establish a credit history:

-  Open an individual savings or chequing account in your name. From this account, your deposits, withdrawals, and transfers will demonstrate that you can handle more efficiently and responsibly.

-  Applying for a smaller loan demonstrates responsibility, and will positively affect your credit rating over a longer term, once you demonstrate that you can make timely and consistent payments.

-  Other forms of credit include department store and gasoline credit cards. These are generally easier to obtain than major credit cards and, if used responsibly, can also serve to enhance your credit rating.

-  In short,there is no quick way to establish credit. It is much better to go slowly and develop a strong credit record than to apply for too many credit cards or a loan that is larger than you can handle. Mortgages are long-term commitments, so appreciate that lenders will need proof of longevity and consistency.

How to build a good credit history:

• Keep your spending under control
• Know the difference between a need and a want
• Make your bill and loan payments in-full and on time 
• If possible, pay your debts off early
• Keep your borrowing to those amounts you can comfortably pay back
• Check your credit history periodically to make sure it is accurate and up to date

If you have poor credit history, the only way to repair your credit history (other than by fixing errors in your credit history) is to practice sound credit skills (see above How to build good credit history) over time.  It will take a few years to recover damage done by poor credit practices, but in time, even a person who declares bankruptcy can earn a sound credit record.

Your Credit Rating and Credit History:

Once you have begun establishing your credit history, it is a good idea, and your right as a consumer, to know exactly what your credit rating score is, even if you always pay your bills on time. Your credit rating (or credit score) - is in large part an evaluation of your credit history by your creditors.  It is an indication of how confident your lenders are that you will repay your debts on time.

In Canada, Equifax and Trans Union are the two major agencies that keep and report on credit history in Canada.  The information in their files is sent to them by the companies (ie: credit card companies, retail stores, finance companies) and banks that give out credit.  They also receive information from collection agencies and the Government (regarding the status of Bankruptcies and Proposals).

Bankruptcies are taken off your credit report 6 years after discharge, while Proposals are purged 3 years after completion.

 (Source: Genworth Financial /http://www.genworth.ca/mi/eng/home_ownership/credit_history.html)