Kids these days need good credit scores – and fast.
The urgency has little to do with acquiring the ability to borrow at attractive rates. It’s really about the ability to find housing. Canada’s rental shortage means competition among prospective tenants is fierce: Those without a credit history or a good score often don’t make the cut.
Landlords want to see credit scores in the “700-plus” range, Toronto real estate agent Sundeep Bahl told me recently. For context, a score of 660 and up is generally considered to be good, according to Equifax Canada.
It’s not just landlords renting condos in downtown Toronto who want to see good scores. When I asked an audience of university students in Hamilton how many of them had encountered a request for a credit score in a rental application, the room filled with raised hands.
While it’s still possible to find rentals that don’t require a credit score – especially in older buildings – the requirement is increasingly common, said Valerie Bruce, director of Student Housing and Strategic Partnerships at Toronto Metropolitan University.
Thankfully, undergraduate students looking for off-campus housing are usually able to work around this issue by getting their parents or guardians to sign on as guarantors, Ms. Bruce said. (The more serious challenge, she added, is for international students whose parents don’t have a credit score either.)
But for graduate students, landlords generally want to see good credit scores even when there’s a guarantor ready to sign on, according to Mr. Bahl. I assume that also holds for young people who are just starting out in the job market after their undergraduate degree.
Having a well-established credit history and solid score by age 22 or 23 is a tall order. I’ve had a few conversations with financial professionals who confessed to wrecking their credit scores in their early 20s when they got their first credit card. Obviously, they learn the lesson quickly enough and have had their financial ducks in a row ever since. Today, though, those early financial screw-ups can have more serious consequences.
But it’s not just that. Learning the basics of money management takes time and so does building a good score. If you consider that the minimum age to get your own credit card in Canada is either 18 or 19 (depending on the province), Gen Z has a pretty short runway to learn to use credit responsibly.
If you’re wondering about how to help your build and maintain a good score, the Financial Consumer Agency of Canada, the country’s federal financial consumer watchdog has some good common sense advice, along with some cautionary words about adding your kid to your own credit card.
A secured credit card can be an excellent way to teach kids about credit, especially if it’s secured against their own savings and not yours. Here’s a comparison of some of the most common secured cards in Canada.
Keep in mind also that many telecom companies also report cellphone bill payments to credit bureaus (prepaid plans, however, don’t count). If you’re unsure whether your kid’s carrier does, they can simply ask, says Rebecca Oakes, vice president of advanced analytics at Equifax Canada.
Finally, Borrowell’s Rent Advantage product makes it possible to build credit by paying rent, though the service costs $8 per month.
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Erica’s personal finance reading list
The rise of 99-year leases in Vancouver
A fascinating look at the growing popularity of long-term residential leases in one of the country’s priciest real estate markets by the Vancouver Sun’s Dougals Todd. Some key takeaways: “Unlike renters, lessees have ‘security of tenure’.” But: “Lessees … must pay extremely close attention to the details, since they won’t have final say on every aspect of their home.”
The ultimate HBP vs FHSA nerd-out
Here’s financial planner Aaron Hector with a meticulous comparison of the pros and cons of the old home buyers’ plan (HBP) and the new first home savings account (FHSA). The HBP lets you use your registered retirement savings plan (RRSP) savings to buy or build a home. The FHSA is a registered plan that helps first-time homebuyers save up for a down payment. Mr. Hector’s rundown comes with a handy table illustrating the similarities and differences between the two.
A boomtown with a shrinking population
That’s Miami, reports the Wall Street Journal. The city’s unemployment rate is well below the national average, yet many residents are packing up. The main culprit? Unaffordable housing.
Many Canadians would postpone retirement if they could slow down at work instead
In a recent Statistics Canada survey of people who were planning to retire, more than half said they would continue working longer if they could do so with reduced hours. And more than four in 10 said they’d keep going if the work was less stressful or physically demanding. Food for thought for employers here.
New products that caught my eye
Wise, formerly TransferWise, has been one of the highest-rated online money transfer services available to Canadians for years. They also have a debit card that lets you spend and withdraw money abroad with zero foreign transaction fees or exchange rate markups. Enoch Omololu at Savvy New Canadians has a thorough review of the card here.
Today’s financial tool
Homiis, a new app affiliated with Queen’s University that helps students and young professionals find rooms and roommates. Much like a dating app, it seeks to pair up roommates or those offering and seeking a room based on budget, lifestyle compatibility and shared interests. Currently available in Toronto, Waterloo and Kingston, Ont.
The money-free zone
It’s not everyday that a serious book based on years of uncompromising reporting gets turned into theatre comedy. But that’s exactly what’s happening with my colleague Josh O’Kane’s bestselling book Sideways: The City Google Couldn’t Buy. The story of the unravelling of a Google affiliate’s $1.3-billion bid to transform Toronto’s waterfront into a smart city is apparently the stuff of comedy gold. Based on my superficial knowledge of Toronto politics and the outsized personalities of tech executives, I can see that. The director is Michael Healey, and the play, called The Master Plan, will open at the Crow’s Theatre in September.
ICYMI
- Want to minimize inflation in your grocery bill? Try prawns instead of pasta
- Real estate deals timed to mortgage rate moves
- As home prices soar, Habitat for Humanity helps higher-income Canadians buy properties
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You’re not bad at money – you’re suffering from money shame • Retirement might look different for Gen Z and millennials. Here’s how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn't special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home downpayment in Canada's big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here's how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
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Erica Alini