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, newcomers continue to contribute to Canada’s economy. If you’re new 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 Are Credit Scores?

Your credit scores are an important factor in helping lenders decide whether or not to lend you money. A  three-digit number between 300 and 900, credit scores are 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:

• 760+: Excellent
• 759 – 725: Very Good
• 724 – 660: Good
• 659 – 560: Fair 
• 559 – 300: Poor

What Affects Your Credit Scores?

Many factors can affect the health of your credit scores. Here are five common factors that are used when calculating a credit score. 

Payment History

Your history of paying bills, specifically paying them on time, may affect your credit scores. For example, if you have a phone bill that you pay on time every month for a long period of time, this may have a positive effect on your credit scores. Similarly, if you often miss or make late payments, it has the potential to negatively impact your credit score.  

Debt-To-Credit Ratio

Your debt-to-credit ratio refers to the amount of debt of you in comparison to the amount of available credit. While having a lot of debt does not necessarily translate to bad credit, it is generally good practice to keep your credit utilization ratio low. It is generally more attractive to lenders when the borrower is not maxing out their credit cards and lines of credit. Moreover, having a maxed-out credit card could negatively affect your credit scores and show potential lenders that you are unlikely to pay your bills on time. Furthermore, if you have lots of debt and a low income, lenders will be less likely to approve your loan application.

Credit History

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 in your home country, it does not affect your Canadian credit history. Unfortunately, you’ll need to restart and begin building your credit once you arrive in Canada. 

New Credit Inquiries

New credit inquiries refer to an instance where your credit is checked. There are two types of credit inquiries: Hard inquiries and soft inquiries. While a hard inquiry can have a negative impact on your credit, a soft one does not. A hard credit check usually happens when you apply for a loan or credit card. Similarly, 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. 

Public Records

Bankruptcies, debts in collections, lawsuits and other derogatory remarks can also affect your credit. Negative remarks such as these may have a severe negative impact on your credit. 

Additional Reading

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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 tips and initial steps to help you get started. 

Start Off Slow

While a strong payment history can positively affect 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 may 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 may possibly 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 The 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 THE LANDLORD CREDIT BUREAU WORK? 

Simply put, the Landlord Credit Bureau allows your rent payments to be reported to the credit bureaus which can help build your payment history. 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 may 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 approve you for an unsecured credit card until you build your credit history. Or, they may only approve you for an unsecured credit card with 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 Cell Phone 

Some cellphone carriers in Canada report payments to the credit bureaus. So buying a new phone contract is an easy way to start building a credit history. By consistently paying a $60 phone bill on time, you will build a good payment history which can help improve your credit scores. 

You can get a plan with carriers like Telus, who offer phone plans without requiring any credit history. However, do make sure you apply for a post-paid plan rather than a pre-paid plan, as pre-paid payment plans are not reported to the credit bureaus. Although pre-paid plans might be more budget-friendly, post-paid plans are the ones that can help you build your credit. 

Monitor Your Credit

In Canada, you can check your own credit scores for free to help you keep track of your progress. Seen as a “soft credit check” by the credit bureaus, checking your own credit won’t affect your scores. Checking your credit also allows you to catch any errors on your credit report that may be affecting your credit scores. 

Can You Transfer Your Credit From Another Country to Canada? 

When immigrating to Canada, your credit history 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. 

How Long Will It Take To Build Good Credit?

Building good credit in Canada as a new immigrant doesn’t happen overnight. In general, it takes at least six months of credit activity after you’ve opened your first credit account, to generate your credit scores. 

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 may have an effect on the calculation of your credit scores. 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, your lender may choose to send your account to collections, which can show up on your credit reports.

Maxing Out Credit Cards

Using a credit card a on regular basis is a healthy credit-building habit. But, the key is to always pay off your full balance every month, this way you won’t risk creating debt you cannot afford to pay off. Another thing you should consider is not using your full available limit. The balance you carry compared to your available credit (sometimes referred to as credit utilization) does impact the calculation of your credit scores. If you have a small credit limit and find yourself using the full amount every month, consider paying off your credit card twice a month. 

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. 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.