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May 17, 2018 | By: Adriana Molina

Do I Need Credit?

Credit Building

Do I need credit? It’s a question that, if asked and answered honestly before submitting a credit application, can help you stay on your path of financial prosperity. In the long-term the answer may be a yes, if managed responsibly. But if you’re facing financial struggles in the short-term, more credit may not be the answer.

Credit can be very important because it generally helps you make some of the biggest purchases of your life, such as buying a house or a car. However, not all credit is created equal and your past credit history will play a huge role in how much credit you are qualified to receive and the interest rate you'll pay on the loan. If you have shown that you can successfully borrow and pay back in a timely and consistent manner, creditors will be more comfortable loaning you larger amounts of funds with a lower rate. But keep in mind that you should not accept all credit that is offered; a careful assessment of whether it’s needed should be completed before signing on the dotted line.

Here are six questions you need to consider when you're offered new credit:

1. Will I be able to pay back what I borrow?

If you know your debt obligations are already too high, don’t take out new credit as this will increase your chances of default and drastically affect your credit score.  

2. Will I pay off the balance in full each month?

If the answer is no, carefully consider whether obtaining more credit is what you need right now. It may just simply push you deeper into debt.

3. What's the interest rate?

Standard credit cards usually charge an annual interest rate of 19.99%. This can be a hefty monthly expense if you’re carrying a balance. There are also high interest loans that initially seem appealing due to their willingness to lend to almost everyone; however, a careful review of the repayment terms will show that sometimes you’re paying close to double the amount loaned. Always try to get the lowest interest rate possible to lower your cost of borrowing.  

4. How much credit do I already have?

Too much credit can work against you and your credit score may lower if you have too many credit accounts open. The more open credit you have, the riskier you will be viewed by creditors.  

5. How many inquiries have I submitted lately? 

It’s suggested that you submit no more than one inquiry, or credit application, every six months, as more than one can start to affect your credit score.

6. What types of credit do I have?

A diversified credit report is important when it comes to building a higher credit score. If you already have one revolving credit card and/or a line of credit (which you can borrow from and repay over and over again) and an installment loan (like a mortgage, which is a loan that you repay with a set number of scheduled payments until it is paid off in full), then you don’t need much more credit.  

Remember: Never make decisions under pressure. Too often, usually at the checkout line at supermarkets and department stores, you’ll be unexpectedly offered credit. Don’t apply on the spot; take the pamphlet and review it at home. Accepting credit just because it was offered, especially in times of need, can compound your financial stress and get you into more trouble—not to mention that every credit inquiry will be a hit on your credit score.

If you’re having difficulty managing your current debt situation, it’s always a good idea to contact a professional for some free advice. Many times people think that obtaining more credit will solve their credit and financial woes, when in fact, speaking with a Credit Counsellor can give you a different perspective and a more viable solution to living debt-free.  If this is the case, you can contact Credit Canada Debt Solutions at 1-800-267-2272 to book a free counselling session with a certified Credit Counsellor. They can help you regain control of your credit situation and set you on a direct path to rebuilding credit and financial wellness.  

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