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How to build credit history as a newcomer to Canada

Rounding it up

  • A credit score is a number between 300 and 900 based on your credit history, or your history of repayment.

  • Building credit as a newcomer can be difficult since your credit history does not travel with you. That means you’ll have to build credit from scratch upon your arrival.

  • You can do so by buying a cell phone, applying for a credit card, keeping up with your expenses, and using credit building tools.

  • Also make sure to pay your bills on time and avoid predatory payday loans — establishing a financial history is within reach.

5 min read

Chrissy Kapralos
#credit#credit building#credit score#newcomer

Have you ever applied to rent an apartment in Toronto, or in any other city in Canada? If so, you’re probably familiar with the holy trinity of rental applications - income, references, and the dreaded credit score. Even with strong references and steady income, many potential tenants are rejected for apartment rentals because of low credit scores.

Building a credit history anywhere in the world can take years. Let’s say you took some time to work on your credit score and you applied for a credit card, signed a phone contract, and generally paid your bills on time to improve your score. Now imagine having all of that effort and history erased. This is the reality for newcomers to Canada. Unfortunately, credit doesn’t follow you when you move to a new country, but building credit from scratch is still attainable for newcomers.

First thing’s first: What is a credit score, and how is it calculated?

Credit scores are three-digit numbers ranging between 300-900 calculated based on your credit history, or your history of repayment. Your score demonstrates your ability to manage credit, as well as the risks associated with lending you money.

Your credit score goes up if you use your credit responsibly, and down if you manage it poorly. Generally, scores over 660 are good, and scores under 560 are bad. For additional context, check out our blog on good credit scores in Canada.

Although credit bureaus do not release information about the formulas used to calculate credit scores, there are many factors that weigh in on your credit score, including:

  • The length of your credit history

  • Your credit card balances

  • Your missed payment history

  • Outstanding debts

  • History of bankruptcy

If you want to check your credit score, there are safe options to check your credit score for free.

How to start building your credit score as a newcomer

So you’re new to Canada with a blank slate of credit history. Here’s the good news - building credit from scratch is easier than improving poor credit. Apart from paying all of your bills on time, there are a few other ways that you can start building your credit:

Step 1: Get a cell phone

Most cell phone carriers don’t require credit history from you but they report your payment history to credit bureaus. That $100 data plan might be a pretty penny, but at least you’ll have consistent payments reported to the credit bureau every month.

Quick tip: Make sure you choose a monthly plan, not a prepaid plan. Prepaid plans aren’t reported to credit bureaus, and don’t show as consistent a payment history as a monthly plan.

Step 2: Keep a budget

A budget helps you plan out your expenses and compare them against your income, while considering any financial goals you may have. Statistics show that Canadians who keep a budget are more likely to be consistently paying off their debt. Keeping a budget can help you pay off your debts, manage your spending, and help you feel more in control of your finances while navigating your new life in Canada.

Also consider using a budgeting tool to help you keep track of everything. KOHO, for example, offers in-app budgeting features to help you map out your finances with real time spending insights. If you’re looking for a good old fashioned, spreadsheet style place to start, check out KOHO’s Ultimate Budget Template.

"Your credit score goes up if you use your credit responsibly, and down if you manage it poorly. Generally, scores over 660 are good, and scores under 560 are bad."

Step 3: Apply for a credit card

Applying for a credit card can help demonstrate your ability to manage your credit effectively. By charging a credit card for purchases, you create a history of repayment, as the credit card company will report every payment you make to the credit bureau. If possible, you want to try applying for an unsecured credit card, which offers relatively lower interest rates than a secured credit card, and doesn’t require a security deposit.

Sometimes, banks might not approve a newcomer’s application for an unsecured credit card if they aren’t satisfied with the credit history. As a last resort, you can apply for a secured credit card, which is easier to obtain with little credit history, however, you will need to provide a security deposit as collateral, and pay higher interest rates.

Step 4: Use KOHO’s Credit Building tool

Keeping up with bills for multiple loans can help build your credit, however, it can be a lot to keep track of sometimes. What if you could build your credit without worrying about paying one extra loan debt on time? KOHO’s Credit Building tool helps to build your credit score by creating a history of consistent payments. All you need to do is keep a minimum of $7 in your Spendable account each month to cover the subscription fee, and KOHO does the rest.

Seems simple enough - anything I should watch out for?

When beginning to build your credit, you want to avoid common pitfalls that can hold you back from attaining a great credit score.

Don’t be late in paying your bills

Make sure you remember to pay all of your bills on time. Utility bills, credit card balances, rent, and phone bills can all be reported to the credit bureaus if you don’t pay on time. Late payments can hurt your credit score, but don’t worry - none of KOHO’s products (except the Credit Building tool, of course) will affect your credit score.

Don’t bite off more than you can chew

Although making consistent payments on multiple loan products can build up your credit, you want to ensure you’re not stretching yourself too thin. Avoid the temptation to take out too many loans. Make sure you keep an accurate budget of your finances so that you don’t take out too many loan products.

Avoid payday loans

Need Cash Fast? No Credit? No Problem! These are some of the tag lines found in marketing for payday loans, and they unfortunately become a common tool for newcomers to secure funding fast. Although these loans are accessible for Canadians with no credit history, they can become an unsustainable cycle of debt for newcomers, with incredibly high interest rates.

Newcomers are one of the target prey of predatory payday loans, so make sure you don’t fall into their trap. If you find yourself strapped for cash shortly before payday, check out KOHO’s Early Payroll feature. We found that $100 is the average amount of money people are short by around three days before payday. Set up direct deposit with a KOHO account, and you can access $100 up to three days before your paycheque at no cost to give yourself a small buffer until payday.

Moving to a new country can be a challenging endeavour. Faced with culture shock, the stress of looking for a new job, and the difficulties of getting comfortable in a new home, newcomers have a lot to adjust to when settling in Canada.

With enough planning and research, following the steps above, and with KOHO’s many features designed to help you gain and maintain financial balance, establishing a financial history in a new country is possible with ease.

Chrissy Kapralos

Chrissy is a freelance writer and editor who is passionate about making financial education accessible. She is also a communications advisor for the Ontario Ministry of Energy, Northern Development and Mines. When she isn't writing, you can find her practicing yoga or watching horror movies.

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