New Immigrants: Establishing Credit

Canada admitted 313,580 immigrants between 2018 and 2019, a record amount in Canadian history according to Statistics Canada. Bringing a diverse array of languages and experiences, immigrants continue to contribute to Canada’s economy. If you’re a new immigrant to Canada ⎯Welcome!

Despite the fact that Canada’s financial system differs from the one in your home country, it’s possible to get a good start in establishing credit to help you settle into Canadian life. Having good credit can help you borrow money from banks, lease a car, rent an apartment, buy a home, obtain a business loan, and more. Here is some helpful information to help you establish good credit as a new immigrant.

Understanding Canada’s Credit System to Establish Credit

First, before you can build good credit, it’s important to understand how Canada’s credit system works.

What is a Credit Score?

Your credit score is an important factor in helping lenders decide whether or not to lend you money. A three-digit number between 300 and 900, a credit score is determined based on your history of paying bills. The higher your credit score, the less “risky” you are to lend to, thus making you more attractive to lenders if you are looking for a loan. This can also translate into lower interest rates and higher borrowing power.

Here’s a general look at credit score ranges, according to Equifax:

780+: Excellent
779-720: Very Good
719-680: Good
679-620: Average
619-580: Poor
579- 500: Very Poor
Less than 500: Terrible

What Affects Your Credit Score?

Many factors can affect the health of your credit score. Here are 5 main factors that credit bureaus use when calculating your score, starting with the most important:

Bill Payment History

Your history of paying bills, specifically paying them on time, contributes to your credit score. For example, if you have a phone bill that you pay on time every month for a long period of time, this will have a positive effect on your credit score. If you have a credit card that you are notoriously late in paying every month, this will have a negative effect on your credit score. It’s important to remember to pay your bills on time to avoid any negative effects on your credit score.

Debt

Although having a lot of debt does not necessarily translate to having bad credit, it is generally a good practice to keep your credit utilization ratio low. For example, if your credit card has a limit of 10,000 dollars and you try to only use 7,000 dollars at a time as opposed to using the entire 10,000, this generally is more attractive to lenders. Constantly having a maxed-out credit card will negatively affect your credit score and show potential lenders that you have trouble managing your debt. Furthermore, if you have lots of debt and little to no income l, this will generally make lenders less likely to approve your loan application.

Credit History Duration

This refers to how long you have been building your credit. As a new immigrant, this factor will be the hardest to overcome, as your credit starts over once you immigrate to Canada. Even if you have a good credit history and a high credit score in your home country, it does not affect your Canadian credit history positively. You, unfortunately, need to restart and begin building your credit again once you arrive in Canada. We will dive deeper into this topic later in the article. The more time you spend in Canada building your credit, the higher your credit score will be.

New Credit Inquiries

New credit inquiries refer to an instance where your credit is checked. For example, if you apply for a loan or credit card, the financial institution will check your credit. In addition, when you enter into another type of financial contract, for example, a rental agreement, you will likely need to have your credit checked by your landlord. Credit bureaus will record every time someone checks your credit history. Generally, a few inquiries won’t affect your credit. However, if you have many inquiries in a short period of time, it may negatively affect your credit score.

Credit Diversity

Although it isn’t a heavily weighed factor, credit diversity can positively affect your credit. Having a diverse portfolio of loans, even small ones, such as a $500 limit credit card and a phone bill, shows lenders that you understand how credit works and therefore seem more credible in paying your bills on time.

How to Start Building Your Credit When You’re New to Canada

When starting from scratch with credit, it can be intimidating to decide where to begin building your credit. Luckily, there are some great tips and initial steps to help you get started.

Start off Slow

Although a diversified credit portfolio can increase your credit, make sure you don’t go overboard in obtaining too many credit cards or loans. If you apply to a lot of different credit products in a short period of time, this will result in a large number of credit inquiries into your credit history. As discussed earlier, too many credit inquiries in a short period of time can negatively affect your credit. Furthermore, if you overwhelm yourself with too many credit products, it’s possible that you might fall into debt. That’s why it’s important to start off slow.

Register With Landlord Credit Bureau

As a new immigrant, you’re more likely to rent than get a mortgage due to your lack of credit. Fortunately, a new program called Landlord Credit Bureau (LCB) has created a platform that will allow tenants to use their rent as a means to build credit. Landlords and property managers that register with LCB will be able to offer their tenants the ability to have their payments reported to the Equifax credit bureau.

How Does Landlord Credit Bureau Work?

Simply put, Landlord Credit Bureau allows your rent payments to be reported and therefore contribute to the improvement of your credit. One of the best things about LCB is that your landlord does not have to be the one to initiate rent reporting. If you create an account with LCB you can initiate Rent Reporting. Once you sign up, LCB will invite your landlord to create an account so that both of you can access a verified Tenant Record where your lease and payment details are stored.

LCB will report your monthly rent payments to Equifax. If you make your rent payment on time each month, this will help you build or improve your credit.

Apply For a Credit Card

When you first arrive in Canada, try to apply for an unsecured credit card right away. Many banks, including the Royal Bank of Canada, offer unsecured credit cards with low-interest rates. However, it is possible that banks won’t grant you an unsecured credit card unless you have more credit history. Or, there is a chance that the unsecured credit card will have a high-interest rate. If this is the case for you, you might want to consider a secured credit card. Secured credit cards require you to use your own money as a security deposit. This is a great way to help you manage your money as well.

Get a Phone

Buying a new phone contract is a great, easy way to start building your credit, and building trust with the credit bureaus. To a credit bureau, paying a $60 phone bill on time consistently shows you have a good payment history. Some cell phone carriers, like Telus, offer phone plans without requiring any credit history. Finally, make sure you apply for a post-paid plan rather than a pre-paid plan. Although pre-paid plans might appear to be more prudent, post-paid plans are the ones that will help you build your credit.

Monitor Your Credit

You have the power to monitor your credit by checking your own credit score. Seen as a “soft credit check” by the credit bureaus, checking your own credit won’t negatively affect your score. Checking your credit allows you to learn about any negative impacts and helps you to address them as soon as possible.

Can You Transfer Your Credit From Another Country to Canada?

When immigrating to Canada, your credit score from your home country does not come with you. To a Canadian credit bureau, you don’t have bad credit or good credit, you have no credit. This is why it’s so important to start establishing your credit immediately when you immigrate to Canada. The good news is that building new credit is much easier than improving bad credit.

How Long Will it Take to Build Good Credit?

Building good credit in Canada as a new immigrant doesn’t happen overnight. Most banks and other financial institutions like to see a credit history of at least 18 months before starting to use your credit history as a factor in offering a loan.

What To Watch Out For?

In your journey to establish credit as a new Canadian, there are a few obstacles you need to keep in mind to ensure you don’t jeopardize your credit progress.

Missing Payments

Missing payments is a sure way to negatively affect your credit. Make sure you remind yourself to pay your bills on time. Set a phone alarm to remind you if necessary.

Payday Loans

Payday loans might seem like an easy way to secure financing if you’re new to a country. They are more readily available and the financial institutions offering them are less likely to focus on your credit history than banks. However, be wary of payday loans. They often come with high interest, and if you aren’t diligent in paying them back, they can go to collections, which can severely damage your credit.

Minimum Payment Trap

When you have a credit card, there is usually a minimum payment indicated. This is the amount of money that you need to pay every month to ensure your credit is not negatively affected. However, many people see this as an easy way to avoid paying their debt off in full. Although your credit won’t negatively be affected directly by only paying the minimum payment, lenders like to see a history of paying debts in full, or as quickly as possible. Make sure to pay more than the minimum payment if you are able to. This will help you pay off your debt faster, and thus look more attractive to lenders.

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 defence. Here are a few of the most common types of credit scams.

Advanced Fee Loan Scams

If a loan company promises you a great loan with a great interest rate with the condition that you pay a large upfront fee (often referred to as loan insurance) 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 your 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 your approval they’re probably trying to scam you.

Final Thoughts

Immigrating to a new country comes with many difficulties. However, establishing credit doesn’t have to be one of them. Getting a head start and following some of the tips outlined above can help you establish credit as an immigrant and obtain loans from financial institutions in no time.

Credit Glossary

Terms


Business Credit Report	A detailed report that is meant to provide potential lenders with information to allow them to determine the business’ creditworthiness before extending credit. There is much more information in a business credit report when compared to an individual’s credit report. Business credit reports are generated and regulated by the credit bureau.
Business Credit Score	A number that represents a business’ creditworthiness based on information within the credit report. The credit bureau calculates and regulates business credit scores.
Consumer Reporting Act	A governing body that oversees credit reporting agencies to ensure that personal information is collected, maintained and reported in a responsible fashion. The Consumer Reporting Act also ensures that individuals have the right to know what information is being reported in relation to them and who the information is being reported to. If any of the reported information is incorrect, you have the right to have it corrected under this act.
Credit	The extension of money, goods or services with trust that the individual will repay the owed amount in the future. In today’s world, trust of repayment is determined through an assessment of creditworthiness using a credit application.
Credit Application	A formal application, required by the majority of lending institutions, that gathers information from the applicant for the assessment of creditworthiness. The form will request information such as personal identification, income and expenses, residency, existing debt, and employment.
Credit Bureau	A governing body that collects credit information about individuals and sells it to other entities that are in the business of extending credit for a fee. Credit bureaus are also referred to as consumer reporting agencies and credit reporting agencies. In Canada, there are two credit bureaus, TransUnion and Equifax.
Credit Card	A financial product that allows cardholders to purchase goods and services using credit. The amount spent in a particular period becomes due at a specific date. If the amount is not paid on that date, interest will come into effect. Credit cards are a physical, plastic card.
Credit Limit	When a creditor extends credit to a consumer it comes with a credit limit, this is the maximum amount the consumer can borrow.
Credit Rating	Credit bureaus collect information about your personal finances and rate you to give potential lenders an easy way to assess your creditworthiness at first glance. There is a rating system in place for consistency and to protect from bias. Credit ratings are different from credit scores but are often used interchangeably. Your credit score actually determines what credit rating you’re given. As an example, if you have a credit score of 850, you’d be given a credit rating of “excellent”.
Credit Repair	The act of improving your credit score by removing inaccurate information from your credit report and working on healthy, responsible financial habits.
Credit Report	A credit report contains information regarding your credit history and includes things such as your credit score, payment history, financial debts, record of debt payment, and any black marks on your credit. Credit reports can be obtained from credit bureaus, such as Equifax and TransUnion.
Credit Score	A three-digit number that is calculated by credit bureaus using a mathematical rating system and information from your credit report. A credit score falls anywhere between 300 and 900, with 900 being the absolute best. Lenders might have minimum credit score requirements for extending credit which is why it’s important to maintain a healthy credit score.
Credit Union/Caisses Populaires	A type of bank that is owned by its members and operates for the benefit of their members. Credit unions are subject to provincial regulation and tend to be small in size and community-oriented. Because of these features, credit unions tend to be a superior way of investing, banking and lending. Credit unions are referred to as Caisses Populaires in Quebec.
Creditworthiness	By assessing the historical information associated with a consumers’ finances, creditworthiness is the amount of trust a lender places on a borrower in relation to the repayment of extended credit. Creditworthiness is assessed using a combination of credit report, credit score, credit rating and application information.


FICO Score	A credit score created by the Fair Isaac Corporation. FICO scores are used by lenders to determine a borrower’s creditworthiness before extending credit. Scores range between 300 to 900.


Inquiry	Whenever an entity, including yourself, requests a copy of your credit report, an inquiry is recorded. A hard inquiry is a request from a lender or any other individual that is assessing your creditworthiness. A soft inquiry is a request by you to view your own credit report. A large number of hard inquiries can indicate financial struggles to a potential lender.
Introductory Rate	A special promotional interest rate offered by credit card issuers for a specific period of time, such as a few months to a year. The goal with these rates is to attract new customers.


Revolving Credit	A type of credit agreement that allows customers to borrow against a pre-approved credit line when making purchases. A credit card is the most popular form of revolving credit. The borrower is responsible for paying the borrowed amount plus interest each payment period. Revolving credit is also referred to as open-ended credit or charge account.

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Chrissy Kapralos

Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.