The Best Ways for Immigrants to Build Credit in Canada

Canada By Janaina Da Costa Dec 16, 2022

Moving to a new country can be both thrilling and overwhelming. In addition to moving homes, getting a visa, and finding a new job, you’ll also need to invest in your financial well-being as you settle into a new country.

After moving to Canada, you’ll need to establish and improve your credit score. A good credit history can help you secure a new house, car, and other significant financial purchases. However, your credit history does not follow you when you move to a new country.

Even though many people may be intimidated by building credit, it’s important to start developing a good track record right away. We’ll break down a few tips and tricks for Canadian newcomers and immigrants to make it easier and less intimidating. So, whether you come from India, the Philippines, Jamaica, or Europe, we can help you understand why and how to build credit in Canada.

Why Is It Important to Build Credit in Canada? 

Building credit in Canada is crucial because it notifies banks and other money lenders that you are responsible for your money. Having a solid credit history is important if you want to take out a significant loan to buy a house or car.

Although you can transfer your financial assets and money from your home country to Canada, your credit score does not travel with you. Some newcomers may be thrilled to start with a clean credit slate, but this can be challenging for others. You’ll need a new credit history in Canada to build a healthy financial life.

What Determines Your Credit Score?

Credit scores in Canada range from 300 to 900; the higher the score, the better. Typically, a 660 and higher is a good credit score, making you an ideal candidate for future loans. 

It’s important to pay your bills on time, not have outstanding debts, and be overall responsible with your money. However, multiple factors can affect your credit score, including:

  • The length of your credit history
  • Income level
  • Outstanding debts
  • Missed payments
  • Credit card balances
  • Savings account
  • Net worth
  • Bankruptcy history

A good credit history shows lenders that you’re a confident, reliable candidate for larger loans. Typically, you need to be in good credit standing for 18 months to qualify for a loan, so it’s important to start building your credit history immediately after moving to Canada.

How to Build Credit in Canada 

Open a bank account

To kickstart your credit journey, you should open a bank account in Canada right away. Opening a bank account begins a relationship with that bank, over time, your bank may offer you financial products to improve your financial standing. Your bank will also notify the credit bureau of your financial history, so you can start building credit.

Get a monthly cell phone plan

A cell phone plan is one of the first utilities immigrants will sign up for. A monthly cell phone plan is a good opportunity to make consistent, regular bill payments, which can positively affect your credit score. Many Canadian phone providers will report your monthly payments to credit bureaus. So, if you pay your bill on time and in full, then you will successfully build up your credit score over time.

Be mindful that you may have to ask your cell phone provider to report your payment history since some may not do it automatically. Also, be sure to get a monthly phone plan, not a prepaid one, as prepaid plans do not help you build credit.

Ask your landlord to report your rent

Similar to your cell phone plan, monthly rent payments are another great way to showcase financial responsibility. For example, if you rent a house or apartment, you can ask your landlord to report your rent payments to the credit bureau. Paying your rent monthly and reporting it to the Canadian credit bureau is a smart way to build up your credit without taking on debt. Be mindful that if you are late with your rent payments, this will negatively affect your credit score, so remember to pay your rent on time.

Get a secured credit card 

Another way to build up a good credit score is to get a secured credit card. A secured credit card requests a monetary deposit to start using the credit card. For example, you may put $300 upfront to open a $300 line of credit. Since your own money backs the secured card, it’s much easier to get this credit card without an income requirement or existing credit history in that country. This is a popular option with newcomers and immigrants.

It is smart to keep your credit card balance low, so it doesn’t negatively impact your score. The thumb rule is to stay 35% below your credit limit. For example, if you have a $1,000 credit limit, try keeping your balance below $350.

Remember to start small and only use your credit card for groceries, monthly payments, and other minor purchases. This way, you won’t accrue too much debt on your card. If you max out your credit limit every month, then you may be seen as a higher risk. If you pay off your balance in full every month, your score will increase and demonstrate to financial institutions that you can manage your debt and finances.

Also, check with your bank to see if they offer specific credit cards for immigrants and Canadian newcomers. Many banks provide credit cards and other financial products specifically for immigrants. But try not to open too many credit cards at once but keep it simple–stick to one or two cards and pay your balances in full every month.

Once you do have a credit card or debit card or a bank account, making money transfers through Western Union is even easier. You can transfer money to loved ones abroad using our money transfer app and easily track when they receive it.

Limit your number of credit checks 

As you begin to apply for some new credit cards, be mindful of your number of “hard checks.” For example, when you apply for a new credit product, like a credit card or a loan, the lender will perform a “hard check,” which extensively reviews your credit history. Every time a hard check is performed, your credit score drops a few points. If you apply for multiple new credit products, then your score can drop quite a bit. So, it’s important to keep this in mind as you build up your credit score.

Extra credit tips 

As you continue building your credit in Canada, remember to check your credit report regularly and take your time reviewing it. If you see or notice any inaccuracies, be sure to report them to the credit bureau. Do not let any mistakes keep you from securing a higher credit score.

Even though starting your credit journey from scratch in Canada can be daunting, it doesn’t have to be overwhelming. Start off with a few simple steps from the above list to kickstart your credit journey and you’ll soon be on your way to a healthy financial life in Canada.