10 Ways Immigrants Can Build Credit

If you’re a newcomer to Canada, your credit score is an extremely important piece of your financial puzzle – it’s one of the main determining factors evaluated when you want to make a major purchase. No matter what your credit score is, you’ll want to build credit so you can establish a positive financial history in Canada.  

What is a credit score in Canada?

Your credit score is a three-digit number that is determined by your credit responsibility. Essentially, if you use credit responsibly, you gain points and on the flip side, if you struggle to repay your debts, your credit score will lose points. Credit scores range from 300 (poor credit) to 900 (excellent credit) with “good credit” sitting around 660. The better your credit, the more reliable you’re considered as a borrower and the better interest rates you’ll get from lenders.

Your credit score is calculated based on your financial habits, though there’s no way to tell how much each financial action truly impacts your credit. 

Some factors that impact your score include: 

• How long you’ve had credit
• How much credit you are currently using
• If you pay your bills on time or miss payments
• The number of your recent credit applications
• Records of insolvency, bankruptcy or divorce
• If you carry a balance on your credit cards or are above your credit limit

This isn’t an exhaustive list but these are some of the financial habits that can make or break your credit score. Unfortunately, as a newcomer, you will have no credit when you enter Canada, meaning you’ll have to work at building it. But don’t worry! There are many easy (and quick) ways you can start building your credit upon arrival. One of those things is starting to build your credit history.

Why is credit history important?
Your credit history is essentially your timeline of borrowing and repaying debts/credit. It’s documented in something called your credit report.

Your credit report houses all the information around your credit activity including your open credit, credit applications, credit repayment (or missed payment) and more. The longer your credit history, especially if it’s positive and well-maintained, the more reliable lenders view you as a borrower.

Your credit history affects your ability to make major purchases by determining your interest rate. If you have good credit, you’ll be considered a responsible borrower and lenders will offer you lower interest rates, making it less expensive to take out a loan. If you have less than perfect credit, lenders may interpet you to be a risky borrower and charge you higher interest to take out a loan in order to protect their investment.

As a newcomer with no credit, one of your main goals should be building your credit history. By showing lenders you are using credit responsibly, it’ll be a lot easier to get approved for loans and make large purchases such as a house or a new vehicle.

10 tips to build credit in Canada

Building credit may seem like a daunting task but it isn’t if you take baby steps. We’re going to walk you through 10 ways you can start building your credit and increasing your credit score when you immigrate to Canada.

1. Get a credit card
You have to use credit to build credit and a relatively low-risk way to do that is by getting a credit card. Use your credit card for daily and weekly expenses such as gas and groceries and make sure you’re not spending beyond your means so you can pay it off in full, every time. Another perk of credit cards? Points! If you get a good points card, you may be able to get items or cash back for the money you spend.

2. Don’t spend your entire credit limit
A good rule of thumb is to try to keep your spending to around 30% of your credit card limit. This will help you not overspend and it shows lenders you’re less of a risk because you’re not spending your entire limit every month.

3. Take out different types of credit
It’s a good idea to take out multiple types of credit as it demonstrates you can use a variety of credit, responsibly. For example, you could have a few credit cards, an automotive loan and a mortgage and this would show lenders you have a diverse credit portfolio that you use responsibly.

4. Pay all your bills on time
One of the easiest ways to build credit is to pay your bills on time, every time. If you can maintain this one habit and don’t have any missed or late payments, you’ll be well on your way to increasing your credit score.

5. Buy a vehicle
Remember how we said you have to use credit in order to build credit? One of the ways you can do that is to buy a vehicle! At Birchwood Credit, we accept all credit types, so even if you’re a newcomer with no credit history, we’ll be able to help you find an affordable vehicle as you start your life in Canada.

6. Limit your number of credit applications
Most times you apply for new credit, the lender will do a hard credit inquiry on your credit report (which actually decreases your score). This is because new credit can signal uncertainty and instability and may have lenders wondering if you’re taking out another loan because you can’t manage your finances. Even if this isn’t the case, a lender may interpret your report in this way.

However, if you only do a few hard inquiries a year, it shouldn’t make a big impact on your score. If you can, try to avoid doing over three major credit applications – like approval for a mortgage – within one calendar year. The more applications and hard inquiries you have, the more it will impact your score.

7. Know what affects your credit score
Understanding what actions will increase or decrease your credit score is a big part in rebuilding your credit. If you know what to avoid, then you can avoid it! Likewise, if you know what you can do to rebuild credit (like these tips in our list), you’ll be a lot better off. There’s a lot of information out there, so check out our 10 credit score myths to debunk some of the false facts and increase your knowledge.

• 8. Use free apps to check your credit score
  These days, you actually don’t have to go very far to check your credit score! There are many free apps you can use to monitor your credit and even your online bank and credit cards. Here are some of the ones out there:
  Mint: Budget, Bills & Finance Tracker
  CreditWise from Capital One
  Discover Credit Scorecard
  Experian CreditWorks Basic
  MyCredit Guide from American Express

At Birchwood Credit, we also offer a Secure Credit Check which allows us to safely check your credit and obtain your credit report for free. Once you fill out the form, one of our credit experts will review your report and set up a plan to help you rebuild your credit and achieve financial freedom.

9. Build your credit history

Like we’ve said before, the longer your positive credit history, the more reliable you appear to lenders. If you continue to build your credit history and use credit responsibly, it will have a positive impact on your credit score.

10. Don’t take on more loans than you can handle
Last but not least, don’t take on more than you can handle. You know your financial situation best and you know how much money you can realistically spend on your monthly bills. Don’t overspend just because you have available credit and you’ll be in good shape to pay your bills on time and increase your credit.

Buy a vehicle with less than perfect credit
At Birchwood Credit, we believe everyone should be able to afford a reliable vehicle and we’re passionate about helping our customers find something they love. We’re happy to help newcomers and Canadian residents alike and we accept all credit types, so regardless of your credit score, we’ll be able to find something within your budget.

If you’re ready to apply, all you have to do is fill out our online application and one of our credit experts will get back to you within 24 hours. You deserve some credit and we look forward to helping you find an affordable vehicle!

Interested in trading in your current vehicle? Learn how trading in your car could help your credit score.