by prepareforcanada.com | Oct 10, 2024

A lesson many newcomers learn when they arrive in Canada is that you need credit to pay for large expenses, buy a car, or purchase a home. However, it’s difficult to borrow without a credit history in Canada. Canadian lenders typically check each applicant’s credit files at one of the main credit reporting agencies (Equifax Canada and TransUnion). This file is like a financial report card that tracks how much you borrow and how quickly you pay it back, to calculate your credit rating and credit score.

Without a credit history, newcomers may need a loan co-signer with a Canadian credit rating, and considerable assets as collateral, or they must demonstrate a history of stable income in Canada to receive a loan. Fortunately, you can start to build your credit record and history shortly after you arrive in Canada.

The financial decisions you make when you arrive in Canada have a huge impact on your credit history and score. The concept of credit can sometimes lead to a debate about how it can help, or hurt you when you are building your credit rating. On one hand, credit can be a fantastic tool to help you:

• Get a loan or a mortgage

• Save on credit card and loan interest rates

• Get approval for lines of credit

• Obtain certain jobs (i.e. some finance-related roles will require a credit check as a condition of employment)

• Rent a home.

On the other hand, if poorly managed, credit can haunt you for many years, and make you miss out on financial opportunities. Creditors can run a credit check on you to assess if you are a low-risk or high-risk borrower. They will also decide to grant or deny you a loan or charge you a higher interest rate.

Your credit history shows lenders that you are responsible when it comes to paying your financial obligations. Whether that is your monthly rent, utility bills, loans, etc. If you have come from a country where you have credit bureaus, you know how important your credit history is. Maintaining a good credit history in Canada is also important.

We’ll share tips to help you build and maintain a healthy credit report. With a strong credit history, you can save money and have more financial freedom.

So what is your credit score when you come to Canada? Nothing. Think of it as a blank slate. Everything you do henceforth will dictate what direction your credit rating will go, up or down.

Your credit history or credit rating starts the first time you get a credit card or loan in your name from a Canadian bank. You can begin by applying for and using a credit card responsibly.

Even if you don’t have immediate plans to buy a house or vehicle, it’s good to establish a credit history, since banks may give special consideration to recent newcomers.

Newcomers may be eligible for a ‘secured’ credit card. A secured credit card is different than a regular credit card because it requires a security deposit equal to the amount of the credit limit. Think of it as a stepping stone to getting an unsecured credit card. Such special offers may be more difficult to obtain later, especially if your income does not grow as fast as you had hoped. A credit card is also useful for larger purchases and as a secondary piece of identification.

Your credit score is important for several reasons:

1. Lenders will review your credit score when you want a mortgage to buy a home, or a loan to buy a car. They want to understand your payment history, and your ability to manage credit and pay off debt.

2. Landlords will conduct a credit check before renting their property to you.

3. Some employers will conduct a credit check before they make an offer of employment. This is common with banks and other financial institutions such as insurance companies.

Your credit score can fall between the range of 300 – 900. Generally, and depending on the credit score model that your financial institute is using a good score is greater than 680. As a benchmark, to get a mortgage to buy a house in Canada, you need a credit score between 600 – 700. If your credit score is lower than 600, you will want to take steps to increase your credit score.

Once you receive a credit card, use it wisely to establish a credit score so that lenders will have confidence in your ability to repay loans.

Your credit is scored on a point system that ranges from 300 – 900 points, where 900 is the best score. To qualify for a loan, your score should be 650 points or higher. If you score lower than 650, it may be difficult to get a loan or receive new credit. However, if you have a low credit score, you can improve your score by carefully managing your credit use.

If possible, avoid using more than 30% of your credit limit (balance-to-limit ratio). For example, if you have a credit limit of $1,000, you should try not to spend more than $300 and pay the bill in full by the due date.

Your credit score may decline if your balance-to-limit ratio exceeds 30% as it may indicate to creditors that you are a higher-risk borrower.

It’s best to start with only one until you are financially comfortable enough to afford more. Avoid opening many credit accounts. Many credit card accounts can signal financial distress to lenders, especially if they all carry a balance on them.

Your credit history is one of the things landlords want to see before giving out their home to you. Your credit history will tell the landlord how reliably you pay debt. A good score and credit report in Canada will tell the landlord that you are reliable and will likely pay your rent on time. This is important to landlords as it guides them in their decision regarding who to rent their home to and who to avoid.

While this arrangement is great for landlords, it can be problematic for newcomers who are looking to rent a home. If you are a newcomer to Canada, you likely will not have a credit history. It takes a minimum of six months to build a credit history. Because of this, it can often be hard to convince a landlord that you will be a reliable tenant. However, there are some tips that you can follow to rent a home without a credit history.

The first thing you can do is show proof to your future landlord that you have a good amount of savings in your bank account. This will tell the landlord that you have enough money to pay the rent and will pay it on time.

If you don’t have a good amount of savings, your top priority would probably be to secure a source of income. Once you have done that, you can show proof of income to your landlord. This will also satisfy landlords because it means that you have enough money coming in every month to pay the rent.

There is also another way to get a house on rent without a credit history. Some landlords openly accept newcomers and reserve their homes, especially for newcomers. These rentals may be small and less than ideal. However, they are a good option if you need a place to stay while you build your credit score. Many times, these rental homes have basic furniture like beds and sofas which makes it easier for newcomers to move into.

In the meantime, paying your bills on time and being reliable with all of your payments is a great way to show lenders that you are financially responsible. And over time, you will build a strong credit report in Canada that will provide many financial benefits.