How To Build Credit as a Newcomer to Canada

Obtaining a Good Credit Rating as a New Resident

Nov 12, 2009 Jane Lapon

There are several ways of establishing credit in a new country but it is important to target lenders properly or a credit history can be damaged before it has even begun.

Credit is an inevitable part of most peoples lives, but as a new resident or immigrant in Canada, a healthy credit history is a vital part of everyday life so it is crucial to ensure that any credit report is a positive one

How to Start a Credit History

As soon as possible after moving to Canada, it is advantageous to obtain credit as quickly as possible as any credit history obtained in another country will not count. Often banks and financial institutions will look for a credit history of at least two years before they will extend credit or provide services without a security deposit. There are some lenders and some credit options available even to newcomers, and these are discussed in the article How to Obtain Credit as a Newcomer to Canada .

What is a Credit Report?

A credit report is effectively a record of financial history which is generated as a result of banks and financial institutions reporting the conduct of the credit provided such as the credit limit on a card, whether payments are made on time, whether the credit limit has been exceeded etc. This information is provided monthly to credit reference agencies (credit bureaus), of which there are three in Canada.

Other information in the report includes previous addresses, information on any cheques returned unpaid as NSF (non-sufficient funds), judgments or garnishment orders for unpaid debts or whether a collection agency has been used to collect a debt. Potential lenders use this report to verify credit-worthiness and this forms the basis of their decision whether to extend an individual credit or not.

Why Limiting the Number of Credit Applications is Important

Finding a lender as a newcomer or immigrant to Canada is often difficult enough but what can be even more frustrating is finding a lender willing to provide credit, only to have the application refused due to too many credit applications. It is important to realise that each and every time an application for credit is made regardless of outcome, the search itself is recorded on the file.

This is often referred to as a "footprint" and in Canada this remains on the credit file for three years, not the six months many people in the UK are familiar with. Lenders see multiple applications as a risk factor and can often be the main reason an application is refused. Therefore it is vital to research which companies are more likely to extend credit and to target products carefully to avoid having to make too many applications.

Who Can Access a Credit Report?

Even if there have been no loan or credit card applications, it is important to be aware that other enterprises will access the report and therefore potentially impact the number of enquiries. Telephone, cable, cell phone and utility companies will all potentially perform a credit check before an account is opened so be aware that this will result in a record. Potential landlords, with written consent, can also access a credit report so the simple matter of renting a home and setting up the utilities can result in several enquiries being recorded ahead of any credit card or loan applications.

How to Build a Good Credit History

Once credit has been obtained it is vital to use it wisely. With a credit card, use the card but pay it off every month and resist the temptation to apply for too much credit. It is also important to ensure the total credit obtained is only around 10-20% of total earnings, at least to start with, so that potential lenders are not alerted to a customer with potentially too much commitment.

Starting with a small loan or credit limit could also make a difference. Once that credit is obtained, however, it is essential to ensure that all payments are made on time and ideally that the credit balance on cards is paid off every month. This in itself will demonstrate good credit management and increase the likelihood of obtaining further credit.

Further information can be obtained from Equifax, Experian or Transunion.

The copyright of the article How To Build Credit as a Newcomer to Canada in Personal Budgeting/Finance is owned by Jane Lapon. Permission to republish How To Build Credit as a Newcomer to Canada in print or online must be granted by the author in writing.

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