How to Obtain Credit as a Newcomer to Canada
Credit Cards and Loans With No Credit History
Often the biggest challenge as a newcomer to Canada is to actually start a credit history. The whole process can be a vicious circle of not being able to obtain credit due to not having a credit history and the seemingly impossible task of not being able to obtain that first credit card or loan in order to build a credit history.
Credit Options for Newcomers to CanadaIt is possible to obtain credit, and careful targeting can reap rewards in starting a credit history. Generally, a form of security for a lender is likely to increase the likelihood of a successful application such as the security of a vehicle or a cash deposit. Examples include:
- Secured credit card
- Auto loan
- Specialist loan (e.g., CitiFinancial, Wells Fargo)
- Purchasing a cell phone and service contract
- Hire purchase
High Risk Lenders
There are some financial institutions that will lend to newcomers, although the interest rates will be high, provided there are not multiple credit searches or enquiries. Some banks offering accounts for new immigrants may also be willing to provide a small loan to allow a credit history to be established.
Secured Credit Cards
This form of credit card requires a cash deposit, equal to the credit limit of the card, which is retained by the credit card company as security. The deposit is only returned once the account is closed, and typically will be a minimum of $500. It is important to ensure that the company offering the card is legitimate and often the best way to apply for one is through a major bank where an account is already held.
Guaranteed Credit Cards
Some credit card companies offer a guaranteed acceptance for a card, often with a low credit limit and a high interest rate, and will often require an application fee. Again, only use reputable companies as there are a high number of "scams" involving alleged guaranteed credit. This type of card is not currently available in Quebec.
Secured Loans
Although advanced fee loans should be avoided at all costs (they are illegal in Canada and these "scams" are sadly very common), security for a loan is an option. If a lender does require a cash deposit as security, this could be deducted from the loan itself. Under no circumstances should funds be wired to a lender ahead of receiving a loan.
Other security options include having a co-signor for the loan. This is effectively a credit-worthy person who acts as a guarantor for the loan. Not all loan companies, however, will report this type of loan to credit bureaus and they are also recorded on the co-signors report. Other forms of security include a vehicle or a property.
Banks
There is still a degree of personalisation in banks in Canada and developing a good working relationship with the assigned account manager can result in pre-approval for credit. Several of the major banks in Canada offer specific banking packages for newcomers to Canada and these are often a really useful way to start to build credit as they may well include a credit card. Holding an account and making regular deposits and ensuring no cheques are returned due to insufficient funds for as little as thee to six months may be all that is required to obtain that first loan or credit card.
Pre-paid Credit Cards
If in spite of everything, it remains impossible to obtain credit, a pre-paid credit card will at least provide a means of purchasing online, reserving tickets etc. Although not reported to credit bureaus, it will at least ensure that where the MasterCard or Visa signs are displayed, there is a method by which to pay.
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. How to Build a Credit History in Canada provides further details on this.
Further information can be obtained from Equifax, Experian or Transunion, which were used as sources of information when researching this article.
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