When you move to Canada, you’ll quickly realize the importance of a good credit score. With a solid credit rating, you can access personal loans, qualify as a tenant for rental properties, or access a mortgage when purchasing a home. You could even apply for a credit card.
Financial companies and other organizations want to know your credit score to establish whether they can lend you money or provide you with various business services. If your credit score is healthy, you will generally pay less for these products in terms of fees and interest rates.
So, how can you raise your credit score? At Remity, we make it easy for you to establish and start building credit in Canada as an immigrant with this simple, up-to-date guide.
Understanding the Canadian Credit System
Lenders in Canada assess creditworthiness using a standardized credit score system. The credit score scale ranges from 300 to 900, and your personal score is calculated based on your credit history.
With no universal credit reporting system, you cannot transfer your credit history from your home country to Canada. Instead, as an immigrant, you’ll start with a non-existing credit, building your credit history in this new country from the ground up.
Before discussing how to build credit, here are some terms worth understanding:
Credit report
This is a summary of your entire credit history. Your records start when you apply for credit or borrow money for the first time. Lenders submit your account information to credit reporting agencies or credit bureaus, providing an overview of your debt and repayment track record. In Canada, the main credit bureaus are TransUnion and Equifax.
Your credit report may include:
- Personal information, such as your date of birth, address, Social Insurance Number (SIN), and previous or current employers.
- A list of lenders that accessed your credit report within the last three years.
- Open and closed credit accounts, and details if they were closed due to fraud or unpaid debts.
- Payment history for all your credit accounts, including missed and late payments.
- Bankruptcies or overdue payments that involved court decisions or collection agencies.
Credit score
On the other hand, a credit score is a three-digit number calculated using data from your credit report. This rating shows your ability to manage credit and the risk level for financial institutions lending you money.
Your credit score can change with the ongoing updates on your credit report. Using your credit responsibly earns you more points. However, your score will drop if you cannot manage your personal debt well.
What’s a good credit score in Canada?
According to Equifax, a good credit score for the average Canadian is between 660 and 724. Below is an overview of score ranges and what they mean:
- Poor: 300–559
- Fair: 560–659
- Good: 660–724
- Very good: 725–759
- Excellent: 760 and above
Higher scores are seen as proof of good financial management, making lenders more likely to approve your requests for credit and loans.
Factors that affect your credit score
While credit bureaus haven’t openly revealed the criteria used to compute credit scores, several factors may influence your score:
- How long you’ve had credit
- How long each debt has appeared on your report
- The frequency of missed payments
- If your credit cards have an outstanding balance
- Your total outstanding debt amount
- The type of credit you use
- How many credit applications you’ve made recently
- How near or far above you are to pre-set credit limits
- Any records of bankruptcy or insolvency
- If past lenders have escalated your debt to a collection agency
Steps to Start Building Credit in Canada
Establishing and building credit in Canada as an immigrant is quite straightforward, but the process takes time. Follow these simple steps to start your credit-building journey:
1. Open a bank account
Start building your credit history by opening a bank account in Canada. Most banks offer special accounts and packages to match newcomers’ unique banking needs.
Once the account is in operation, your bank shares those details with a Canadian credit bureau. This starts a new credit file from a trustworthy financial institution.
Opening a bank account is also a starting point for your relationship with that specific financial institution. The longer you’re a customer with a particular bank, you can access their services and products more easily.
As a newcomer, there are several Canadian banking products designed to help you save, manage your daily financial obligations, and build a credit history:
- Chequing accounts
Chequing accounts are ideal for sending and receiving e-transfers, paying fees, purchasing with debit cards, or setting up salary auto-deposits.
These banking accounts can limit your monthly transactions to help you keep spending in check. Other options offer unlimited transactions with no extra fees. However, these no-fee chequing accounts may require maintaining a minimum balance.
- Saving accounts
Do you want to set aside cash for an investment or upcoming expense? Consider a savings account. These accounts offer modest interest rates and limited withdrawals.
Depositing your money in a traditional savings account is a great way to keep it safe while it grows over time.
- High-interest saving accounts (HISAs)
Unlike regular savings accounts, HISAs help your money grow faster. These accounts offer higher interest rates for your nest egg than traditional options. New HISA customers occasionally enjoy bonus interest rates from financial institutions.
Usually, HISAs don’t require a minimum balance, account fees, or withdrawal limits. They are perfect for short-term savings or holding emergency funds.
2. Get a cell phone
A cell phone is a priority for most immigrants. When you get to Canada, it will probably be the first utility you can sign up for, and so the first bill you’ll start paying frequently in your new country.
Certain Canadian cell phone providers can give you an account without a credit check, as long as you submit the required documents in person. However, they will share your payment history with various credit bureaus.
Pay your cell phone bill on time to start your credit history strong in Canada. To avoid missing a utility bill, sign up for automatic payments.
3. Apply for a credit card
Getting your first credit card gives you the ability to start building credit. Each month, you can settle the entire balance and prove your creditworthiness.
You can also control the amount charged to the card, helping keep the credit balance low. It’s recommended that you keep the balance at or below 30% of the credit limit so it doesn’t negatively impact your credit score. Find out more about applying for your first credit card at your bank branch.
4. Use KOHO’s Credit Building tool
Use KOHO to establish your credit as soon as you arrive in Canada, even before you can get a credit card. This paid online tool lets you begin building a credit history for as little as $10 CAD a month.
To use the dedicated credit builder:
- Download the KOHO app
- Subscribe to KOHO Credit Building
- Keep at least $10 CAD monthly in the spendable account for subscription fees
5. Level up your budgeting
If you have any debt—whether a mortgage, student loan, or credit card loan—making timely payments is the only way to increase your credit score.
And an effective way to ensure you pay bills on time is by budgeting accordingly. Manage your expenses, set aside savings, and keep your financial priorities clear throughout the process. Looking for more budgeting tips? See our helpful guide to managing your finances in Canada.
Common Mistakes Newcomers Make
When used sensibly, a credit card can positively affect your credit score. However, not understanding the risks of credit card use can push you into debt, ultimately lowering your credit rating.
To build a good credit history and increase your credit score, avoid these common credit card mistakes:
1. Missing payments
Make an effort to pay your credit card’s minimum amount every billing period. Paying off the entire balance monthly is recommended, but it’s not always practical.
Missed or late payments can impact your credit rating and linger on your credit report for up to six years.
2. Maxing out each month
Your card may have a huge credit limit, but you don’t have to spend it all every month. Doing so might not only get you off the assigned limit, but it can also hurt your credit score.
As we mentioned, always try to stay below 30% of the credit card limit.
3. Applying for credit often
Credit inquiries usually account for 10% of your credit score. Applying for a lot of credit within a short time can signal an urgent need, sending up red flags to lenders. Each time a lender requests your credit report, it’s known as a hard inquiry; these remain on your credit report for up to three years.
4. Paying statements without review
Most credit card providers give the auto-pay option that lets you pay your statement without delays and worries.
However, convenience means that most make payments without going through the credit card summary. Always review your credit card bill to look out for potential fraud, identity theft, transaction errors, or double payments. It also helps you know how much you spend and on what, so expenses don’t exceed your budget.
5. Using cash advance
Cash advances may be convenient, but they often come with an advance fee and higher interest rates. While initial costs could be as low as $5 CAD per transaction, these services attract interest from day one, increasing your repayment.
6. Sticking to the first credit card
The first credit card typically comes with a small credit limit and fewer benefits. As you build your credit history and score, you qualify for better products.
When you upgrade to a better card and increase the credit limit, you can stay with the 30% ratio and enjoy more perks.
Monitoring Your Credit Score
Credit monitoring is a service that regularly updates your credit report and credit score. Monitoring is crucial because it helps you accomplish several important goals:
- Build a robust credit history: Keeping an eye on your credit helps you track your progress, build positive credit habits, and master Canada’s credit system while at it. Did you know that over 90% of Canadians already have a credit card? It will be a big part of life here, so spend time understanding how they work.
- Avoid fraud: You can quickly identify irregular transactions and address identity theft or fraud.
- Ensure accuracy: Credit report errors can harm your credit score, affecting your access to credit or loans. Monitoring lets you spot the mistakes and take early measures to fix them.
How to Check Your Credit as a New Immigrant
Check your credit score by browsing through the details of your credit report. In Canada, you can access this information online from two major credit bureaus:
- Equifax: You can access your credit score online for free, and the information is updated monthly.
- TransUnion: You can access your credit score details online for free if you live in Quebec.
Some banks may also offer access to your credit score information for free, while others may charge a fee for this service.
Build a Foundation for Financial Freedom
As a new immigrant in Canada, you will need access to financial services from the country’s leading lenders to settle in. These institutions look at your credit score to determine how risky it would be to lend you funds. Start building your credit score as soon as you land in Canada to manage your financial needs hassle-free. And remember, always pay bills on time to maintain a good credit score for you and your family’s future.
Frequently Asked Questions
Why should an immigrant build a good credit history?
A good credit history makes it easier to access financial services and products such as loans, credit cards, mortgages, and more. A healthy credit rating also makes it possible to negotiate for lower interest rates on loans.
How long does it take to build credit in Canada?
Generally, it can take immigrants at least six months to build credit in Canada. Excellent financial management is key to creating and maintaining a good score over the long term.
Why is it difficult for newcomers to Canada to get credit?
In Canada, lenders cannot share financial information across countries. Different countries also have different standards for creditworthiness. As an immigrant, this means you cannot currently transfer the credit history from your home country to Canada.
How do I build credit as a new immigrant in Canada?
As an immigrant to Canada, you can start building a credit history as soon as you get into the country. Opening a bank account, getting a phone number, and paying for rent and other utilities on time are great ways to start adding to your credit report.
Can an immigrant get a credit card in Canada?
Yes, you can get a credit card in Canada as an immigrant once you open a bank account and earn a credit score above the eligibility requirements. These requirements will change from one bank or lending institution to another.