If you recently arrived in Canada, you’re likely wondering how to build credit as a new immigrant? The process of building a credit history and credit score in Canada is easy. However, depending on your circumstances, getting a good credit score may take some time.
Regardless of your situation, building your credit score in Canada is vital if you ever plan to lease a car or get a mortgage. Fortunately, there are quite a few things you can do as a newcomer to ensure that you’re on the right path.
Look for a newcomer banking package
Just about every major bank in Canada offers a newcomer package that will usually give you access to a bank account, safety deposit box, and even a credit card. This is convenient as a new immigrant since you can get most of your financial needs set up right away in one spot. It’s important to note that you should shop around as every bank has different offers. For example, HSBC has a Canada Newcomers Program where you can get up to $1,000 in value for free. HSBC even allows you to apply for the account before you arrive in Canada, so you can have everything ready to go as soon as you land.
Apply for an unsecured credit card
When setting up your banking information, apply for an unsecured credit card at the same time. Unsecured cards allow you to build your credit history right away, and there’s no need for security deposits. Applying for a credit card when you set up your banking is beneficial because the customer service rep may be able to approve your application manually. As in, even if you don’t meet all the standard requirements, you may get the card.
It helps to do a little research beforehand. If you’re going to get a card, you might as well get one of the best travel credit cards in Canada or one of the best cash back credit cards in Canada. If approved, be sure to start using your card immediately.
Get a secured credit card
If your bank doesn’t approve you for an unsecured credit card, you can always get a secured credit card instead. Secured credit cards require you to leave a security deposit, which typically acts as your credit limit. For example, if you deposited $500 in security funds to your secured credit card, you’d have a credit limit of $500. Although you can’t use those funds to pay your bills, you would get it back if you cancel your card.
This process may seem weird to some people, but the idea is you’re building trust with your credit card provider. The security funds are there to ensure you’ll pay your bills. As you pay your bills, your credit score will increase. Some of the most popular secured credit cards are the chatr Secured Mastercard and the Home Trust Secured Visa Card.
Pay your bills on time
The most important thing about building a good credit score is paying your bills on time. As soon as you get your statement, pay it in full. Yes, you could wait until the last minute to pay it, but sometimes there’s a delay in the transfer, resulting in your payment being late.
Technically speaking, you only need to make the minimum payment to avoid any missed payments, but then you’ll incur interest charges, which is never a good thing. It’s always in your best interest to pay the full balance. It’s also worth noting that you don’t need to wait until your statement arrives to make a payment. You can make payments whenever you want without it affecting your credit score.
Get a mobile device with a phone/data plan
Getting a cell phone with a monthly plan is another way you can build your credit. Some carriers, such as Telus, don’t require a credit history when opening a new account. That said, they may need you to put down a deposit. Be sure not to confuse this deposit with prepaid cell phone plans. You want a post-paid subscription since your payment history would be reported to the credit bureaus.
Understand how your credit score works
You can improve your credit score by understanding how it works. First off, your credit score is a number between 300 and 900. The higher your number, the better your credit score is. Once you get your credit score up to 660+, you likely won’t have any issues getting access to credit since your credit would be considered good. You should still aim for higher as a better credit score may get you better rates.
The five factors that determine your credit score are:
- Payment history – 35%
- Amount owed – 30%
- Length of credit history – 15%
- Types of credit – 10%
- New credit applied for – 10%
As you can see, increasing your credit score is simply a matter of using your credit responsibly. Generally speaking, as long as you’re not maxing out your credit and paying your bills on time every month, your credit score will improve over time.
Once you know how to build credit as a new immigrant to Canada, things become much easier. Yes, it’ll take time, so don’t look for any shortcuts. Once you have an established credit history, getting a loan shouldn’t be difficult.