How to improve your credit with a savings loan
KEY TAKEAWAYS
✔ A savings loan provides a way to establish a pattern of responsible borrowing and grow your savings.
✔ On-time payments help you (build or improve your credit score) establish a better credit score in Canada.
✔ A better credit score can help you get approved for better interest rates in the future.
How do you establish yourself as a responsible borrower if you can’t get a loan because you don’t have a credit history? It can be a difficult and stressful situation whether you are new to Canada with no credit, a student with no credit history, or you’ve had some missteps with credit in the past.
Fortunately, there is a simple and easy way to establish or build your credit and generate some savings at the same time. It’s called a savings loan and here’s how it works.
Step 1. Choose your amount, get a loan and put the money in a savings account
Borrowing money when you don’t need it to buy anything might seem strange. But this is the best time to take out a loan because it’s a low-risk way to establish a credit history in Canada or improve the one you have.
You simply borrow a lump sum of cash that gets deposited into a savings account. The money stays in the account where it can earn interest and grow. But as you’ll see, building up some savings is not your only benefit.
Step 2. Pay down the loan and start building your credit
Now that you have a loan and you’re making on-time payments, you can start to establish a track record that shows you can make payments and you’re managing to pay off your debt. This activity is what credit bureaus monitor and use to give you a credit score which establishes your overall credit rating.
Step 3. Keep up the momentum and become a great saver
You can feel confident knowing that with every on-time payment, you’re helping to improve your credit score. Plus, those payments pay down the loan and your savings continue to grow.
When your savings loan is paid off in full, take time to congratulate yourself on a job well done. You’ll have money in a savings account and the confidence of knowing you can achieve your goals while establishing good credit.
Top 4 advantages of a savings loan
It builds your credit score. Making on-time payments helps improve your credit score because it shows your commitment and ability to pay, making it easier to get other forms of credit at lower interest rates.
It establishes discipline. A savings loan is a way to develop the habit of saving money. This ensures you always have some money for a rainy day.
It boosts your confidence. When you know you’ve taken a solid step towards saving while building your credit score, you can be confident that you are improving your financial future.
You have money and options. Once you’ve finished your payments, you have savings that you can use as collateral to get a secured credit card. And then you can improve your credit rating by paying off the card each month. Or, simply use your savings to pay off any other debts.
Is it right for you?
Many paths lead to establishing or improving good credit in Canada. The savings loan is ideal if you have the income and the discipline to make on-time payments.
In time, the savings that you accumulate while paying off your loan can be used to secure other forms of credit, such as a secured credit card. So if you’ve been denied credit, this is an excellent way to create more financial options in the future.
To learn more about savings loans, call or visit a branch to discuss all your borrowing options.
Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.