How to Build Credit in Canada as a New Immigrant

How to Build Credit in Canada as a New Immigrant

Building a good credit history is one of the most important steps for newcomers to Canada. A strong credit score can open doors to financial opportunities, such as securing loans, getting credit cards, renting an apartment, or even landing a job in some cases. If you’re new to Canada and don’t yet have a credit history here, don’t worry—there are several ways you can establish and build credit. This guide will help you understand what you need to know about credit, when to start building it, who can help, and how to build your credit in Canada.

What is Credit?

Credit refers to the ability to borrow money or access services with the promise to pay later. In Canada, credit is often used to buy things on credit cards, loans, or lines of credit, and your ability to borrow money is influenced by your credit score. Your credit score is a number between 300 and 900 that represents your creditworthiness—the higher your score, the more trustworthy you appear to lenders.

Why is Building Credit Important?

As a new immigrant, establishing good credit in Canada is essential for several reasons:

1. Access to Credit: Lenders, such as banks, will look at your credit score to determine if they should approve you for credit cards, loans, or mortgages.
2. Better Financial Opportunities: With good credit, you’ll likely be offered lower interest rates, saving you money in the long run.
3. Renting an Apartment: Landlords may check your credit before renting to you to ensure you are reliable with payments.
4. Employment: Some employers, especially in financial sectors, may check your credit report as part of their hiring process.
5. Emergency Financial Support: Having credit available provides financial flexibility in emergencies.

Who Needs to Build Credit in Canada?

As a new immigrant, you will need to start building credit if:

• You have just arrived in Canada and have no existing Canadian credit history.
• You plan to buy a home or car or need to borrow money in the future.
• You wish to apply for a credit card or loan.
• You plan to rent an apartment, where landlords often check credit scores.

When Should You Start Building Credit?

Start building credit as soon as possible after arriving in Canada. The earlier you begin, the sooner you’ll develop a credit history that can be used for future financial needs. Here are a few key points to keep in mind:

1. Start as Soon as You Get a Job: Most financial institutions will require proof of income before offering credit products, so ensure you have stable employment before applying for credit.
2. Be Patient: Building good credit takes time. It can take a few months or even years to develop a strong credit history, so be patient and consistent in managing your credit.
3. Stay Consistent: Maintaining your credit is an ongoing process. Pay your bills on time, avoid missing payments, and keep your credit card balances low.

Where Can You Start Building Credit in Canada?

You can begin building credit in Canada through the following methods:

1. Open a Canadian Bank Account: Before you can start building credit, you will need a bank account. Canadian banks offer a wide range of banking services, including credit products. Consider opening a chequing and savings account with a reputable bank or credit union.
2. Get a Credit Card:
   • Secured Credit Cards: If you’re new to Canada and have no credit history, you may have to start with a secured credit card. With a secured card, you deposit money with the bank as collateral, and that deposit becomes your credit limit. This helps reduce the risk to the bank while you build your credit.
   • Student or Entry-Level Credit Cards: Some credit cards are specifically designed for people new to the country or students. These may have lower credit limits but can help you build a credit history.
3. Apply for a Credit Building Loan: Some financial institutions and credit unions offer small loans to newcomers specifically designed to help you build credit. These are often called credit-builder loans. You repay these loans over time, and the bank reports your payments to the credit bureaus, helping you build a credit history.
4. Use a Co-Signer: If you’re unable to qualify for a credit product on your own, you can ask a family member or friend with established credit to co-sign a credit card or loan. However, this can be risky for both parties, as any missed payments will affect both individuals’ credit scores.
5. Get a Cell Phone Contract: Many mobile service providers offer postpaid phone contracts that report your payment history to credit bureaus. By making regular payments, you can build your credit score.

How to Build Credit in Canada

Building credit in Canada involves more than just getting a credit card. Here’s a list of actionable steps you can take:

1. Pay Your Bills on Time:
   • Timely payment is one of the most important factors in building a good credit score. Set reminders or automate payments to ensure you never miss a due date.
2. Start with Small Amounts:
   • When you first get a credit card or loan, try to use it for small purchases that you can pay off in full each month. This helps establish a positive payment history without racking up debt.
3. Maintain Low Credit Utilization:
   • Keep your credit utilization (the percentage of your credit limit that you’re using) below 30%. For example, if your credit limit is $1,000, try to avoid carrying a balance higher than $300. High credit utilization can negatively impact your credit score.
4. Monitor Your Credit Report:
   • Check your credit report regularly to ensure all the information is correct. In Canada, you’re entitled to a free credit report from the two major credit bureaus, Equifax and TransUnion. Monitoring your report will also alert you to any fraudulent activity.
5. Avoid Applying for Too Much Credit:
   • Each time you apply for credit, a hard inquiry is made, which can temporarily lower your score. Too many applications in a short period can make you appear desperate for credit, which may hurt your score.
6. Keep Old Accounts Open:
   • The length of your credit history is important in determining your credit score. Even if you don’t use an old account, keep it open, as it helps lengthen your credit history.

What to Avoid When Building Credit:

1. Missing Payments: This will have a significant negative impact on your credit score and can remain on your report for several years.
2. Racking Up Debt: Only charge what you can afford to pay off in full each month. Carrying a balance on credit cards can quickly spiral into unmanageable debt.
3. Closing Old Credit Accounts: As mentioned earlier, keeping older accounts open helps your credit history. Closing accounts can reduce your overall credit score.

Conclusion

Building credit in Canada as a new immigrant is an essential step to establishing financial independence and security. By following these strategies and remaining disciplined about your spending, you’ll be well on your way to a strong credit score. Remember, building credit takes time, but with careful management, you can set yourself up for a successful financial future in Canada.

---

References:

1. Financial Consumer Agency of Canada (2023). How to Build Credit in Canada. FCAC
2. Canada Credit (2023). Credit Score and Credit Report Information for Canadians. Canada Credit
3. Equifax Canada (2023). How to Build Your Credit Score. Equifax