It can be difficult starting a brand new life in a new country, especially when it comes to establishing credit. Here are some tips on building your credit from the ground up
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It can be difficult starting a brand new life in a new country, especially when it comes to establishing credit. A 2015 study commissioned by the Bank of Montreal’s Wealth Management division revealed that one-fifth of immigrants to Canada arrive with no savings. Those who do have savings, come with an average of $47,000 and they spend more than half of it just getting settled. Unless you move to Canada with a job offer — with benefits — in place, you may have nothing. So, how can a new immigrant build credit?
It’s difficult for newcomers to build a credit history simply because the credit history they may have in their home country doesn’t come with them to Canada, and they haven’t been given the same opportunity to build a Canadian credit history, says Christine Shisler, director of cultural markets at the Royal Bank of Canada (RBC).
“Where a mainstream Canadian has had years to build up a financial history, a newcomer to Canada doesn’t have any of that history,” she says. “The challenge comes from not having any financial information, not an assessment of financial risk.”
Luckily, this can be remedied, though it may take some time and discipline.
“When looking to build credit, two factors any consumer should focus on are paying bills on time and managing a low credit utilization ratio,” says Ken Chaplin, a senior vice-president at TransUnion. “In addition, utilizing a credit monitoring tool and regularly monitoring your credit report can help pave the way to a healthy financial situation.”
Here are a few other tips to help you build solid credit from the ground up:
1. Check and understand credit reports and scores.
The two credit reporting companies in Canada are Equifax and TransUnion. Whenever a person opens any sort of account with a bank or other lending institution, any activity on the accounts is listed in these reports. Lenders go to these companies to see how big of a risk a person is before deciding to extend credit. A credit score is a three-digit number given based on the sort of credit extended by and payments made to lenders. The higher the score, the less of a risk one is considered to be.
2. Open a bank account.
“The best advice is to go into a bank branch and speak to an advisor,” says Shisler. “There’s no commitment or cost to doing so and they’ll be able to assess each individual’s situation and advise them on which account is appropriate.”
She says there are other ways to assess credit if you have no Canadian credit history, based on employment and residency status, along with your overall immigration story.
3. Open a regular or high-interest savings account.
If you show a bank or lending institution that you can save money, they may trust you with small lines of credit or credit cards.
“The Tax-Free Savings Account is a great way to take advantage of some tax-free savings if you haven’t been employed in Canada,” says Shisler.
4. Start with an overdraft.
An overdraft is limited permission to spend more than you have in the bank. It’s essentially a small loan when you need extra money; it gets paid back as soon as you make a deposit. You shouldn’t use this excessively, but using it occasionally shows you can be trusted to pay what you owe.
5. Open a department store credit card account.
These include cards from Hudson’s Bay Co., Sears and other major retailers. The interest rates are usually on the higher end (about 18-21 per cent) with lower limits, but they seem to be easier to get.
6. Apply for a secured card.
These cards are offered to those with no credit or with bad credit to help them establish a credit history. It’s the same as a regular credit card except that the credit limit is set by how much money you can put down. These cards are a little easier to get because the company isn’t taking any risks. But, of course, you still have to be responsible and pay the bill. Any activity on a secured card is reported the same as it would be with an unsecured card, so it will affect your credit. If you handle a secured card responsibly, you can eventually become eligible for an unsecured card.
7. Find a co-signer.
This is something Shisler says is an option to consider, but is not always necessary. Although it is a great way to show you can be trusted with credit, if you default on payments, you aren’t the only one whose credit will suffer — your co-signer’s will, too. Usually, the co-signer must have a strong credit history. If you don’t have any family or close friends, you may not have much luck with this option. Most people will not enter a joint credit agreement with someone unless they are very close to that person.
8. Accept offers of credit through banks.
If your bank is promoting its lines of credit, you should try to get a small credit line. If approved, your line of credit should be used regularly, but carefully, to establish consistency and trustworthiness.
“Your best investment vehicle really depends on your end goals. Without knowing those goals, it’s hard to recommend any one specific investment product,” Shisler says. “That being said, there are benefits that exist in Canada that may not exist elsewhere, so make sure your advisor is educating you on the best ways available to make your money work for you. Asking the questions around what you can get out of your investments is really important.”
Furthermore, according to Bill Christie, a retired financial adviser and personal accountant, investing not only shows responsibility with money and a seriousness to save, but you’re also investing in the bank through your investment, which looks good from a lender’s perspective.
10. Once you have the credit, use it carefully.
The way to be trusted with larger forms of credit such as mortgages or car loans is to show you can use the credit you’ve already been given wisely.
Finally, a few additional points of caution:
- Having too much credit isn’t good, either. Once you’re approved for a credit card or line of credit, use it responsibly for a while before attempting to apply for more. If you want to go from, say, a secured card to an unsecured card, it’s enough to use one card wisely. You don’t need several secured cards. Future lenders may think of you as a risk if you have several credit cards or lines of credit. This will also prevent you from having too many hard inquiries at once on your budding credit report.”Apply for accounts and credit as needed because if you have been managing Canadian credit for a short time and you open a lot of new accounts quickly, this would have a larger impact on your score since you don’t have a lot of information with the credit bureau,” Shisler says.
- Constantly switching credit card companies or banks also doesn’t look good from a lender’s perspective. Such activity stays on your credit history for many months or years before it is purged.
- Pay more than the minimum payment and try not to put more on credit than what you can pay off in one or two payments. Try to keep a low credit utilization ratio; that is, the amount of credit available to you compared to how much you use.