Locating new schools and communities are just a few of the challenges new Canadians face when they immigrate here. For many, establishing a credit history so they can purchase a home, car or even secure a mobile phone plan and insurance is a top — albeit confusing — priority.
"A good credit rating is essential for everyone, including newcomers to Canada," says Patricia White, executive director of Credit Counselling Canada. "A good rating helps with obtaining a lease for rental accommodation, mobile phone contracts, utilities and employment in some cases."
But navigating a new financial terrain can be challenging. According to a recent poll from TD Canada Trust, most newcomers don't know how to open a bank account (47%), apply for a credit card (58%) or mortgage (87%) or send money to family overseas (72%) in their first three months in Canada.
The credit rating system (24%) and not having access to credit right away (23%) were the biggest financial surprises for new Canadians. A credit rating reflects the ability of a potential customer to pay back borrowed money and is recorded by at least one of Canada's major credit-reporting agencies: Equifax Canada or Trans Union of Canada.
The following tips can help newcomers build their Canadian credit rating:
1. Apply for a secured credit card
"This usually involves providing a lump sum of money to the bank," says White. If you deposit $500, for example, the bank will provide a credit card with a credit limit of $500. "The lump sum is held as security on the card should the debt not be paid."
This product is not a gift card or a pay-as-you-go card where you use money on the card, White says. If used responsibly over time — if you charge items and pay the card in full by the due date — you will begin to establish a credit rating. Once it's high enough, you can apply for an unsecured credit card.
2. Pay all of your bills on time and in full
Late bill payments can negatively affect a credit rating so consider setting up pre-authorized debits to avoid missing recurring bill payments. "If you can't afford to pay an entire bill, think about setting up an automatic transfer of the minimum monthly payment to avoid negatively affecting your credit rating," says Raymond Chun, senior vice-president at TD Canada Trust.
3. Check your credit rating before applying for a mortgage
Qualifying for a mortgage and favourable interest rate depends on a number of factors, including a solid credit rating. "It takes up to 18 months to build enough credit history to apply for something as robust as a mortgage," says Stephen Menon, associate vice-president of credit cards at TD Canada Trust.
"I recommend checking your credit rating every 12 to 18 months to make sure you have an accurate understanding of how your credit is being established and built."
Checking your rating at least six months before applying for a mortgage will give you time to correct any errors. Only time and good payment habits can improve your rating.