Establishing Credit in a New CountryBy Caitlin in Credit
Moving to a new country can be an extremely difficult and long process especially when it comes to learning how to deal with and interact with a whole new financial system.
Establishing credit in a new country should be a priority for you as a good credit score and history are the foundation you will need to build your new life on. Every country in the world has their own banking system that works differently depending on the currency, taxes and credit structure. Understanding how all of these systems work will allow you to build a credit history and be as successful as possible.
Establishing a Credit History
In Canada your finances rely heavily on your credit history, all creditors and lenders in Canada use your credit history to determine your creditworthiness and assess the potential risk associated with lending you money. This means once you’ve arrived in Canada you need to start building a credit history right away. To do so you need to start using credit, here are your best options:
Type of Credit
|Unsecured Credit Cards||-Easy way to establish a credit history |
-No deposit is necessary
|-Can be difficult to get approved when you have no credit history |
-Higher interest rates, if approved
-You’ll need to watch your debt cautiously
|Secured Credit Cards||-Easier to get approved when you have no credit history |
-Interest rates are typically lower
|-You’ll need to pay a deposit (this is what makes it secured) |
-Your limit is only as big as your deposit
|Instalment Loans||-You’ll have a payment schedule |
-Payments are easy to manage because they are always the same
-You can use it to purchase a necessity like a car or make a down payment on a house
|-More difficult to get approved because you have no credit history |
-Some lender may only offer high interest rates to borrowers with no credit history
When you’re new to Canada and trying to build a credit history from the ground up you’ll typically have to take what you can get when it comes to credit (click here for more information about the credit approval process). But this doesn’t mean you need to accept ridiculously high interest rates and extremely low limits, shop around as there are lots of lenders and credit companies who are willing to work with credit constrained individuals.
How Your Credit Score is Calculated in Canada
In Canada there are two main credit bureaus (TransUnion and Equifax) that calculate credit scores and keep track of credit histories. Each bureau has its own method to calculate credit scores but they are both based on the FICO system. This system takes into account 5 factors when calculating credit scores. Having a good understanding of what these 5 factors are, will allow you to use your credit responsibly in order to build your Canadian credit history and score.
|Credit History||This takes into account how you’re handling the repayment of your current debts. If you’re new to Canada and only have a credit card you need to be diligent with your payments. Late or missed payments on any of your debts will negatively impact your credit score.|| |
|Debt Owed||This factor looks at how much debt you have and how much debt you have compared to your limits. Using your credit is important but having a lot of debt is not good for your credit score. Having maxed out credit cards will also negatively affect your credit score.|| |
|Length of Credit History||The length in which you’ve had a credit account opened also affects your credit score. Since you’re new to Canada this will be low until you’ve lived here for a few years.|| |
|New Credit Applications||When you first arrive in Canada you’ll need to apply for credit, but too many applications will have a negative impact on your credit score. Every time you apply for new credit the creditor will make an inquiry into your credit report, too many inquiries in a short period of time is not good for your credit score.|| |
|Types of Credit in Use||Having a variety of credit accounts, like mortgages, instalment loans, car loans and credit cards is great for your credit score. Because you’re new to Canada and might only be able to get one type of credit, this factor is something you’ll need to work on once you’ve been living here for a few years.|| |
In Canada a credit score can range from 600-900, the higher the number the better but don’t worry too much about the actual number right away. The most important thing you can do is to start slowly and work your way up by responsibly using a credit card and then maybe applying for a loan. Too much credit too quickly can be overwhelming and could have a negative effect on your credit score, which is not what you want. Click here for more details.
How to Avoid Credit Scams
While there are plenty of lenders and creditors who want to help out all Canadians, it’s important to recognize that there are people who will try to scam and trap you. Unfortunately getting trapped in a credit or loan scam can knock points off your credit score and diminish all the hard work you’ve put into establishing a Canadian credit history. Educating yourself against these scammers is your best form of defense; here are a few of the most common types of credit scams:
|Type of Scam|| |
|Advanced Fee Loan Scams||If a loan company promises you a great loan with a great interest rate provided you pay a large fee, you are more than likely being scammed. Try to remember that if a deal seems too good to be true it probably is. No loan company should ask you to give them money before you receive your loan.|
|Guaranteed Unsecured Credit Cards||No one can guarantee you approval before you’ve even filled out an application. Some scammers like to advertise that they can guarantee an unsecured credit card, this is a complete lie. Unsecured credit cards are typically harder for people with no credit history to get, so if someone is guaranteeing you one they’re probably trying to scam you.|
|Payday Loans||Payday loans are technically a scam as they are legal in Canada but they are one of the worse things you can do to your credit history. Payday lenders will give you the money you need on the spot but then charge you upwards of 400% interest and trap you in the payday loan cycle for years. Avoid all payday loans no matter how desperate you are for a loan.|
Need More Help?
If you’ve recently moved to Canada and are currently looking for a credit or loan company to work with and are having difficulty finding one, then give us a call or check out our online application. We can help you with all your Canadian financial needs, no matter what your financial past looks like.