Building a Solid Credit History in Canada: A Guide for Newcomers
If you’re new to Canada, you might not be too familiar with credit, credit cards, or how your credit history works here. Understanding how credit operates can make it easier to handle your daily expenses and set you up for a stronger financial future in Canada.
As a newcomer to Canada, you may not be familiar with the idea of a credit score. However, your credit score can impact your finances, job opportunities, and even where you live in Canada.
This guide will walk you through what a credit history is and how credit scores function, and it will give you tips on how to improve and keep a strong score to help you achieve your goals in Canada.
How is Your Credit Score Looking?
A credit score is a number that reflects how you’ve managed credit before and helps predict how likely you are to repay loans. In Canada, credit scores fall between 300 and 900, and a higher score means better credit.
Every time you borrow money, use credit or pay a bill, details like how much credit you use, if you make payments on time, and any missed payments are sent to credit bureaus. Over time, this information forms your credit history, and your credit score is a number that sums up how you’ve managed your credit.
As someone new to Canada, your credit score won’t begin at zero. Instead, a score of 300 is given to those with poor credit history, not those who have never used credit before.
Why is your credit history important in Canada?
Banks, employers, landlords, and lenders might want to do a “credit check” on you. This process involves looking at your credit report—with your approval—to help them decide whether to offer you a loan, a job or a rental agreement.
A high credit score can help you qualify for mortgages, credit cards, lines of credit, and credit cards more easily. It may also give you the power to negotiate better terms, such as a lower interest rate. Additionally, a strong credit score can provide landlords with confidence that you pay your bills on time, which can be beneficial when you’re looking to rent a place. Some employers also check credit scores to see if applicants have a good history of managing their finances.
Your credit score matters, but there’s a hurdle for newcomers. Usually, your credit history from another country doesn’t transfer to Canada, so you’ll need to start fresh and build your Canadian credit history from the ground up.
How to build a solid credit history in Canada
As a newcomer, you’ll be starting your credit history in Canada from scratch. Here are some helpful tips to boost your credit score as you settle in:
- Obtain a Social Insurance Number (SIN)
A Social Insurance Number (SIN) is a special number you need to work in Canada and access government services. It’s also necessary for opening various bank accounts, particularly credit accounts. You can apply for your SIN online or visit a Service Canada Centre to get one.
- Choose and use a Canadian credit card
Using a credit card smartly is one of the fastest ways to improve your credit score. But if you’re new to Canada without any credit history, getting approved for a card can be tough. Fortunately, many banks offer credit cards designed for newcomers, helping you start building your Canadian credit from scratch.
If you can’t get a newcomer credit card, you might still qualify for a secured credit card from a Canadian bank. A secured credit card requires you to make a security deposit, which usually sets your credit limit equal to that deposit. As your credit history grows stronger, you can eventually qualify for better credit cards with higher limits.
Just having a credit card isn’t enough; you need to use it consistently. As a newcomer, you can begin by using your credit card for small, regular expenses like groceries, bills, or even your daily coffee.
While many banks typically provide newcomers with low credit limits, you could receive a limit of up to $15,000 on an RBC Cash Back Mastercard, based on your income and assets. Additionally, as your credit history in Canada grows stronger, you might qualify for higher credit limits.
- Manage your borrowing wisely
Credit bureaus pay attention to your “credit utilization ratio,” which shows how much of your available credit you’re using compared to your total debt. To maintain a healthy ratio, aim to spend no more than 35% of your total credit limit across all your accounts. For example, if your credit card limit is $3,000, try to keep your purchases under $1,050 each billing cycle.
Because many newcomers begin with credit cards that have low limits, it’s important to keep your spending within that limit. Going over can result in extra fees from most banks for exceeding your approved credit amount.
Credit card interest rates can be steep, so it’s essential to borrow only what you can easily pay back by the time your bill arrives.
- Pay off your debt fully on time
After getting a credit card, it’s important to use it wisely. Make purchases and pay off the balance in full and on time whenever possible. Most banks offer a 21-day grace period at the end of your billing cycle, allowing you to pay your bill without incurring interest or late fees. You can easily pay your credit card bill using your banking app or online. Some banks even let you set up automatic payments so that the amount is taken directly from your checking account on the last day of the grace period. Just make sure you have enough money in your account to cover the payment.
If you’re unable to pay the full balance on your credit card, it’s important to at least make the minimum payment by the due date. You can find the minimum amount you owe right at the top of your statement.
Making the minimum payment can help keep your credit score safe, but be careful—some credit cards come with high interest rates, so it’s best not to carry a balance. If you’re struggling to pay off your card, think about cutting back on your spending or moving your balance to a credit card with a lower interest rate.
While paying your utility bills, like water and electricity, won’t boost your credit score, paying them late can definitely harm it. To protect your credit, make sure to pay your utility bills on time and in full.
- Opt for a postpaid cellphone plan, if you can
When considering your credit score, you might mainly think of credit cards and loans, which are great for establishing a credit history. However, mobile phone providers also report your payment activity to credit bureaus! By ensuring you pay your postpaid phone bill on time and in full, you’re actively working to strengthen your credit history.
Many phone companies require a credit check before offering postpaid plans. For newcomers without a credit history in Canada, this can make it difficult to get approved. However, if you already have a Canadian credit card, you might still qualify for a postpaid plan, even without a long credit record.
It’s smart to reach out to different phone providers or visit a store in person to check out the postpaid plans that might be available for you.
- Keep your credit checks to a minimum
Each time you apply for credit—whether it’s for a new card or to increase the limit on one you already have—the bank or lender will perform a credit check, often called “pulling your credit report.” These checks are known as “hard inquiries” and can cause a small drop in your credit score. If you have too many of these inquiries in a short time, it could lead to a noticeable decline in your score, as it might appear you’re relying too much on credit or struggling to manage your finances.
Not every credit check affects your credit report. For example, when you check your own credit score or if someone like an employer or landlord looks at your report, it’s classified as a “soft inquiry.” These types of checks won’t hurt your credit score at all.
You can reduce the number of credit checks on your report by applying for credit only when necessary. It’s also wise to gather quotes from different lenders within a two-week timeframe, as this way, all those checks will be counted as just one inquiry.
- Keep an eye on your credit score
Your credit score can fluctuate, so it’s important to stay informed. You can check your report directly with credit bureaus like TransUnion or Equifax, or see if your bank offers free access to your score through online banking tools. Keeping track helps you stay on top of your financial health.
Take time to review your credit card, loan accounts, and personal details for any mistakes. Since credit reports from TransUnion and Equifax can have slight differences, it’s important to check both often. If you notice anything unusual, it could be a sign of fraud, so make sure to contact the credit bureaus right away to resolve any issues.
- Diversify your credit portfolio
While a credit card might work for your early financial needs in Canada, over time your financial situation will probably evolve. Having different types of credit—like a line of credit, loan, or mortgage—can help build your credit history as you get more established. However, it’s important to avoid taking on too much debt as a newcomer and only borrow what you can comfortably repay.
- Give it time
How long you’ve had credit is a key factor in determining your credit score. As a newcomer, your credit accounts are just starting, so the credit agencies don’t have much to go on yet in terms of your payment habits. But as you continue to use credit responsibly, like paying off your credit card or other loans, your credit history will grow and strengthen over time.
- Be proactive
Missed payments can remain on your credit report for years, so it’s important to keep up with due dates and always pay on time. If your credit score drops, don’t worry—it can bounce back if you maintain smart financial habits. Be prompt in paying your bills each month and try to pay them off completely. Also, focus on reducing any outstanding debt to lower your credit usage, and try to limit how often you apply for new credit cards or loans.