Rounding it up
Credit scores have little to no impact on the immigration process.
That’s because your credit score from your home country—good or bad—won’t carry over to Canada.
Establishing a strong credit history is nevertheless important once you arrive in Canada.
You can start forging great credit by securing a credit card and using it wisely, taking advantage of reliable credit building products, and practicing caution to avoid credit card fraud and identity theft scams.
Millions of hard-working professionals around the globe are coming to Canada to forge a new life for themselves. While Canada remains one of the most desirable locations for immigrants, many who aspire to make the journey are unfamiliar with its financial landscape. Questions about what documents they need and whether their credit score will matter for Canadian immigration may even prevent them from trying to move to the Great North altogether. That’s why we’ve compiled this helpful guide.
Does having a strong credit score matter for Canadian immigration? While your overall financial flexibility will be important, having a weak credit score won’t necessarily stop you from moving to Canada.
The importance of good credit
There’s no denying that a newcomer would want to establish good credit for themselves as soon as they’ve settled in Canada. After all, a stellar credit score will help you secure loans for the buying of a house, car, and other assets.
However, don’t be deceived into thinking a weak credit score will prevent you from immigrating to Canada. The Canadian government doesn’t actually hold your credit score against you when you seek to move to Canada. Your credit score actually won’t follow you from your home country, wherever that may be. This is because different countries measure credit scores in a variety of ways – the Mexican or Australian method of gauging your credit won’t necessarily translate over to the Canadian system.
If you have lackluster credit in your country of origin, this is good news. If you’ve developed a fantastic score, not so much. Americans who move to Canada may be surprised to discover their excellent credit score back home won’t always earn them the trust of Canadian lenders right away. This is the double-edged sword of international credit; while bad credit won’t follow you around the world, neither will good credit.
How Canadian scores are calculated
Let’s say you’ve just moved to Canada and are looking to buy a home. Consequently, you’re vying to enhance your credit score – but how do you actually go about calculating and improving your Canadian credit score? Your credit score is calculated between the range of 300 to 900 – the higher the score, the better your credit. There are five separate factors that largely determine what your credit score will be as a resident of Canada hoping to secure a loan:
1. Your history of repayment
Residents with an excellent history of paying off their debts on time will enjoy higher credit scores. Those who fail to make payments in a timely manner will see their overall credit score drop. This is because lenders are more concerned about getting paid back than anything else.
This can pose a serious challenge for a new resident of Canada who has a limited or nonexistent history of receiving and paying back Canadian loans. While you may be able to provide documents proving that you paid loans back in your country of origin, Canadian lenders are more interested in your domestic history than anything else.
2. Your current debts
Another crucial factor for determining your credit score is whether you’re currently indebted; in other words, if you’ve borrowed and owe money. In the eyes of a lender, this means you’re less likely to have spare cash to pay back a new loan. Keep your consumption of credit relatively low to ensure a higher credit score. For example, you could avoid making big, unnecessary purchases to keep your credit usage low.
If you’re really struggling to manage your debt, consider enlisting the help of a financial planner. They can help you create and maintain a tight budget while giving you financial advice when seeking a loan.
"While your overall financial flexibility will be important, having a weak credit score won’t necessarily stop you from moving to Canada."
3. Your credit length
The overall length of your credit history helps creditors determine whether you can be trusted with a loan. Unfortunately, new residents to Canada can do relatively little when it comes to their domestic credit length – bolstering your credit history will simply take time. Luckily, this means that residents with poor credit scores in their countries of origin can start anew in Canada, unburdened by past mistakes.
4. Credit diversity
Residents who have a good mix of credit may have higher credit scores. Sometimes called a “credit mix,” your credit diversity refers to whether you possess revolving credit, installment credit, or open credit. Having multiple types of credit available means you have credit diversity. You don’t necessarily need credit diversity to achieve a good score but it can be helpful to have.
5. New lines of credit
If you’ve made many recent inquiries to open new lines of credit, lenders may take this as a sign that you’re in financial trouble. Limiting your overall efforts to achieve new lines of credit may thus enhance your credit score. New immigrants should focus on applying for lines of credit they’re confident they can achieve. This requires a realistic assessment of your financial situation and careful preparation of your documents and applications.
Canadian companies ultimately use these main factors to calculate your credit score. While the overall process is quite similar to that of other countries, Canadian lenders will still use your Canadian credit score before endorsing a foreign score they’re less able to calculate and verify.
Building your Canadian credit
Now that you understand how Canadian credit scores are determined, you need to start building your credit to help finance your future. Start with a credit card; securing a Canadian credit card and using it wisely is one of the most reliable ways to bolster your credit, whether you’re an immigrant or a native-born citizen. You must strive to pay off your card in full or at least make your minimum monthly payments and avoid maxing out your cards if you want to use them to develop a strong credit history.
New immigrants to Canada should also familiarize themselves with the official resources provided by the Canadian government that aim to prevent credit card fraud. Thieves who go through your garbage to locate financial documents or use digital devices to steal your credit card information can wreak havoc on your overall credit history. Learn to avoid shady websites and keep your credit cards close at hand when shopping offline to avoid the perils of credit fraud.
There are also helpful digital tools you can use to build your credit history other than traditional credit cards, too. Services like KOHO provide credit building features that can help establish your reputation with major credit bureaus. Taking cautious advantage of credit cards and these digital tools will put you on the fast track toward financial flexibility in your new home.
Getting a car loan is another method for building your Canadian credit. Most Canadians rely on automobiles for personal and professional use, and immigrants are no exception. Your car dealer may help you arrange for financing through the manufacturer, a bank or credit union, or an independent company that focuses on car loans. Provided you maintain strict discipline when it comes to paying back what you owe, this loan will convince future lenders that you’re creditworthy and reliable.
Forging a successful life in Canada
You don’t need a great credit score to move to Canada. Indeed, the credit score you possess in your home country will have little to no impact on your immigration process, whether it’s strong or weak. While demonstrating that you have a minimum amount of saved money and the ability to earn a certain level of income may be necessary, you should only worry about your credit score after you arrive and begin forging a successful life for yourself in Canada.
Ryan Severance is a professional freelance author and the owner of American Scribe LLC. With degrees in political science and socio-legal studies, he writes about business, politics, and law for clients around the world.