Common FAQs on Building Credit as a Newcomer to Canada
Whether you’ve just arrived in Manitoba or plan to do so soon, there are likely a few big purchases you’ll make once you arrive such as a vehicle or a house. You’ll need a loan to purchase these things, but maybe this is the first time you’ve been introduced to the terms “credit score” and “credit history”.
As a newcomer, you will have no credit when you enter Canada – meaning you’ll have to work at building it. This is an extremely important part of your financial puzzle here, as your credit history is one of the main determining factors evaluated when you want to make major purchases.
Building credit might seem like a confusing thing, but don’t worry! There are many easy (and quick) ways you can start building your credit today. This blog will answer some of your biggest questions when it comes to building credit as a newcomer.
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. 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 the interest rates will be offered to you from lenders.
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.
WHAT ARE SOME WAYS TO BUILD CREDIT AS A NEWCOMER?
Open a bank account. Opening a bank account should be the first step in starting your credit history. The financial institution will report the details of the bank account back to the credit bureau and a fresh credit file will be created for you. Doing this will also begin your relationship with that financial institution. Typically, the longer you spend as a customer with a bank, the more products and services they will offer you.
Register with The Landlord Credit Bureau. As a newcomer, you’re more likely to rent before getting a mortgage. Fortunately, a new program called Landlord Credit Bureau (LCB) allows 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 rent payments reported to the credit bureau.
Get a cell phone. For many people new to Canada, a cell phone will be the first utility they sign up for. Some cell phone providers in Canada don’t require a credit check before giving out an account, but they do report your payment history to the credit bureaus. Paying your cell phone bill on time is an excellent way to get your credit history off to a good start.
Get a credit card. You have to use credit to build credit and a common way to do that is by getting a credit card. Use your credit card for daily and weekly expenses such as gas and groceries. Ensure you are paying off your balance in full every month to demonstrate your creditworthiness.
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.
Buy a vehicle. One of the ways you can use credit to build credit is by buying 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.
WHAT KIND OF CREDIT CARDS CAN I APPLY FOR?
Unsecured credit card. As a newcomer, you should be able to get an unsecured credit card from your bank of choice. Typically, banks will offer you a lower credit limit to get you started on building your credit history.
Secured credit card. If you’re unable to get an unsecured credit card without a credit history, you may be eligible for a secured credit card. The difference with this card is you’ll be required to pay a refundable security deposit that’s usually the same amount as the card’s credit limit. Your payment habits will be reported directly to the credit bureau, which can be a bonus if you’re trying to improve your credit quickly.
WHAT AFFECTS MY CREDIT SCORE?
Understanding what actions will increase or decrease your credit score is a big part of building your credit. This isn’t an exhaustive list, but here are some of the financial habits that can make or break your credit score:
- How long you’ve had credit
- How much credit you are currently using
- If you pay your bills on time or miss payments
- Your number of recent credit applications/inquiries
- Records of insolvency, bankruptcy or divorce
- If you carry a balance on your credit cards
- If you are above your credit limit on your credit cards
HOW CAN I CHECK MY CREDIT SCORE?
These days, you don’t have to go very far to check your credit score. There are many free apps you can use to monitor your credit score, online banking 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! This allows us to safely check your credit and obtain your credit report – at zero cost to you. 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.
WHAT SHOULD I NOT DO WHEN IT COMES TO CREDIT?
Don’t apply for too many credit applications. Most times, a lender will do a hard credit inquiry on your credit report – which actually decreases your score. New credit can have lenders wondering if you’re taking out another loan because you can’t manage your finances. If you can, try to avoid doing over three major credit applications within one calendar year.
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.
CAN I APPLY FOR A CAR LOAN IF I HAVE NO CREDIT?
YES! 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. Regardless of your credit score, we’ll be able to find something within your budget.
HOW CAN I GET STARTED ON BUYING A NEW CAR?
At Birchwood Credit, we want to help new Canadians find reliable transportation and increase their credit score. We recognize there may be obstacles that make it challenging for you to get approved for auto financing at other banks and lenders. However, at Birchwood Credit, we specialize in helping car buyers with less than perfect credit (and even no credit history) get an auto loan with terms they can actually afford. We’re here to help you drive away in an affordable vehicle! Get started today.
