I'm New to Canada - Tips on Building Your Credit History
If you’re one of the 250,000 people who immigrated to Canada this year, welcome! Aside from acclimating yourself to a new country, home, and job, you’ll also quickly realize the benefits of building a credit history with a strong credit score.
Whether you’re looking to lease a car, buy a home, get a cell phone, or get a credit card, your going to want to start building a credit history right away to get access to lending products at the best rates available. Here are a few tips to help you get started:
- Apply for an unsecured credit card: Apply for a Canadian credit card as soon as possible. Many of the big banks offer new immigrants a credit card with a low line of credit as part of their initial banking package, such as Royal Bank’s “Welcome to Canada” package or Scotia’s “Start Right” program. Once you get your credit card, start using it right away.
- Apply for a secured credit card if need be. A secured credit card requires you to put money on deposit with the credit card issuer as collateral in the event you default on your credit card balance. Not every person will be eligible for an unsecured credit card without a credit history, this is especially true of older adults. Also, if you’re looking for a credit card with a larger line of credit, you’re best bet may be a secured credit card. The advantage of using a secured credit card, over a debit card, is that your repayment habits will be reported to the credit bureaus, allowing you to build that all important credit history.
- Apply for a mobile phone. Some phone carriers, like Telus, specifically state that no credit history is required to get an account, and that they will report your post-paid subscription to the credit bureaus. While you may be tempted to get a pre-paid plan, a post-paid plan will help you build a credit history.
- Pay your credit card bill on time. Whether paying the minimum or more, make your credit card bill payments on or before the due date. 35% of your credit score is based on payment history. If you’re late, even by an hour, your credit history will be negatively impacted. Paying on time does not mean paying your entire balance. Paying on time means paying at least the monthly minimum payment, which is shown on your credit card statement. Understand how long you have after receiving your credit card bill to make your payment, called your grace period. It’s usually around 21 days. To help you pay on time, you can set-up automatic monthly payments through your bank account.
- Pay off your balance in full each month. While carrying a balance and making your payments on time will help your credit history more than paying in full each month, we would never recommend carrying a balance just to build your score. Using your credit card and paying it off every month will help build your credit score as well, just not as fast. But it’s a better strategy than paying excessive interest charges just to build a credit history.
- Get different types of credit. The credit bureaus love people with different sources of credit. So if you can manage to get a credit card, cell phone, or car loan (usually with a large deposit), it will help you build a credit history with a strong score that much faster.
Financial institutions will usually start using your credit history after it’s been established in good standing for a period of 18 months. But several other factors will be considered as well, including your savings history, net worth, income and ability to provide a security deposit, such as a down payment on a mortgage. These strategies should go a long way towards establishing a Canadian credit history for new immigrants.