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Why Post Secondary Students Must Protect Their Credit Score

09/03/2014 05:07 EDT | Updated 11/03/2014 05:59 EST

The new school year is upon us. And, as post-secondary students across the country face a new and exciting independence, there is another first that many might be experiencing - the first time they manage their own finances, including credit.

While the vast majority (94 per cent) of post-secondary students understand that keeping their credit score in good standing is important, our 2014 RBC Student Poll found that many aren't sure what it takes to get there. Maintaining a strong credit score will help students later in life as their goals change from paying for education to buying their first car, starting a business or buying their first home.

The credit mistakes that students make today can affect them for years to come, so as parents, it is our job to ensure we teach them about responsible credit use. Our kids often look to us for financial advice and guidance but many parents don't fully understand how to build and maintain a good credit score either.

There is a lot for both students and parents to learn about managing credit. Consider the following statements about credit scores:

True or False? There is no harm paying your bills late as long as it only happens occasionally.

False: Whether or not you pay your bills on time is the most important factor in your credit score. Missing even one bill payment can negatively affect your credit rating - this includes your mobile phone, internet and credit card. Seventy percent of students and 83 percent of parents got this one right.

True or False? Applying for a lot of different credit cards can hurt your credit score.

True: Fifty percent of students and 63 percent of parents knew this. Don't apply for a for multiple credit cards in a short period of time. Lenders will view this as a red flag.

True or False? In Canada, your credit rating is affected by your age, income and gender. The higher a person's income, the better their credit rating will be.

False: More than half of students believed this to be true, but the reality is that your credit rating is based on your record of managing your finances responsibly. Lenders look at how you handle your financial obligations, such as whether you pay bills on time, carry a balance, or regularly miss payments - not how much money you make.

True or False? Checking your own credit will harm your credit standing.

False: Checking your own credit history does not affect your credit rating. In fact, it's recommended that you request a report on an annual basis to check for errors.

True or False: Asking for lower limit on a credit product will help your credit rating.

False: Lenders like to see a big gap between your available limit and the amount of credit you're actually using. Apply for the credit you need and use it responsibly. While it's best to pay off your balance in full each month, you should always make the minimum payment.

Credit can be a good tool for students when creating their financial plan for their post-secondary years. And, because you build your history over time, gaining responsible spending habits and a solid understanding of how credit works is paramount to ensuring credit is used properly.

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