Transitioning your life to a new place is not an easy thing. It takes courage, patience, and a lot of effort. There’s so much pressure and tension that whether or not you’ll make it fine in a new area.
- A new job to accelerate your career,
- Affordable housing to stay secure,
- Budget-friendly insurance to keep your family protected,
- And a top credit card that can help you build your credit without ruining all your previous efforts.
The to-do list is endless! We can’t guarantee help in the housing and job part, but we can surely assist you in building your credit as a newcomer. For starters, finding top credit cards to build credit score to support rebuilding a good credit report should be your first step.
Why, though? Is credit building that important in Canada? Yes! However, no need to rush; let us guide you through everything you need to know.
Why Is Credit Building Important?
Finding a decent job, house, credit card, insurance, and the mortgage is already challenging. But, it becomes even harder when you are a new immigrant who knows nothing about how finances work in Canada.
1. Job Hunting
Looking for a job with no credit history and a bad credit score can be tough, as some employers need your financial security in the form of good credit to hire you.
Of course, you might think the relevance of a good score and job is fishy, but that’s true! In fact, surely, some of you reading this are bopping your head in agreement. And we don’t even need to tell you how a bad score and no job can make it harder for you to protect yourself from inflation.
2. Housing & Rental
You might have heard numerous times that a perfect credit score can help you find a perfect yet affordable housing unit. In addition, your landlord might look into your score or credit history to make sure you are capable of paying the rent or lease.
Needless to say, you can’t adjust to a new place without having a house in a secure neighborhood.
3. Credit Card Services
You need a good credit card to build your credit as a newcomer in Canada. However, you also need good credit to get that best card in the first place. Ah, the irony.
- A good credit card will help you build your score,
- Earn rewards and bonuses,
- Get discounts and promos,
And so much more! All these benefits make starting credit building as a Canadian immigrant absolutely evident. So, put your mind on track and take the first step now!
4. Premium Insurance
Insurance can be the key to your health, car, mortgage, and even life protection. No kidding! And when you are just starting your new life in Canada, it becomes even more important.
“The better your credit score, the better insurance rates you’ll be offered!”
You know the rest. The bad your score is, the poor your credit history is, and the worse terms you’ll get. It won’t be wrong to say that your credit decides what you’ll pay on your insurance.
5. Cost-Effective Mortgage Terms
Not everyone has the finances to pay for all the mortgage upfront. Heck, most of us are paying our loan payments even in our 50s. So you can imagine what the situation could be if you fail to find a good mortgage rate.
- Your good credit score works like a warranty card, and the lenders will most likely prefer your application.
- You can also negotiate your terms and ask for a lower interest period if your credit score is in an excellent range.
Yes, you can look for alternative lending options and other private borrowing resources, but it will only put your finances in a tough position.
What Credit Do Newcomers Start With?
To put it simply, zero! Yes, you read that right.
New Canadians start with no credit, as there’s no global credit reporting that can help you benefit from the credit you maintained previously. Sadly, it’s the hard truth.
Kiara Taylor says when you are trying a new life in Canada, you also have to start fresh with your credit score.
Good Credit Range In Canada
As long as your credit score doesn’t fall in the bad category, you can consider it acceptable in Canada. Yes, the card and lending options are endless. You can manage to get a card or loan with your average credit score in Canada.
Note: The scenario is for people who have just shifted to Canada.
As your credit is basically nonexistent and you have to work on building credit from the start, the lenders understand it’s really not your fault. So here’s how range is calculated in Canada:
- The basic range is from 300 to 900.
- A score above 660 is considered acceptable, and as you move closer to the 900 mark, it evolves from good, very good, and excellent.
However, you should aim for a lower range when you are just starting and gradually make your way up to a good score.
Bad Credit Range In Canada
As there are good, perfect, and excellent categories in the higher credit score range. Similarly, you can also categorize the score as poor, bad, or below average.
- A poor or bad credit score usually ranges from 300 to 574.
- And further up to the 660 mark, it still falls in the below-average category.
However, you can’t expect to have a perfect credit score category as you are starting to build your credit as a newcoer in Canada.
Still, you should make wise financial decisions and use your card intelligently to quickly move into a good score category.
How Does Credit Work In Canada?
Credit cards allow users to borrow money up to a certain limit. It brings comfort, flexibility, and peace in life as you don’t have to bring cash everywhere with you. All you need is a card, and you’re good to go traveling anywhere.
Yes, it does come with a legit responsibility as you shouldn’t use more than what you have, but that’s a discussion for another time. Credit works in Canada like anywhere else. Here’s what happens:
1. Credit Check
When you apply for a card, the agency, bank, or credit card company runs a background check on your previous credit history. This step helps them decide the credit risk of your profile. In addition, it helps them decide whether or not you are the right consumer for their card.
- The purpose of a credit check is to analyze if you can’t repay the credit timely.
- In fact, the lenders need a surety from the user that the money they lend won’t be wasted.
Note: Not all lenders will run a credit check when you apply for the card. A secured credit card is the best example of it.
2. Interest Rates
It won’t be wrong to say that the credit check might also help them decide the interest rate for you. But it’s only beneficial if you know how interest rates work in Canada.
Because otherwise, you don’t know what you have to bargain with the lenders!
- For instance, if your credit check results in “a user with poor credit score, no credit, and bad repayment history,” you will most likely get a higher interest rate.
- However, if your credit check shows that you have always been a good consumer with a good credit score, a stable credit history, and a perfect repayment record, you will likely get a lower rate.
Yes! That’s true. You can work around your interest rate if you have perfect credit. Moreover, the following are the factors that decide your credit score:
- Payment history,
- Used credit,
- Previous records,
- Credit length,
- Public records,
- Available credit,
- Credit profile,
- Inquiries (soft, hard).
Now one can think that when you start with a zero credit in Canada, how can these affect your score? Well, you need a card to start building your credit. And as you are doing that, these are the key elements that can help you rebuild your credit profile in no time.
We have been discussing the importance of credit building as a newcomer in Canada for a hot minute now. Surely you get the memo of why it’s absolutely necessary. But now you must be thinking? How can you actually build it?
What do you need to do to build your credit as a new resident? Let us tell you!
Ways To Build Credit As A Newcomer In Canada
Your credit matters whether you’re an immigrant or a born resident! One can’t think of being irresponsible with finances and expect a good result out of it.
So, here are some ways you can use to build your credit as a newcomer:
1. Make A Secured Card Your BestFriend!
A secured credit card is hands down the best option for a newcomer in Canada. There are endless reasons for that. To name a few:
- It doesn’t usually require a credit check (your no credit score and history won’t be a problem).
- You can start with a low-security deposit (flexible approval terms can work in your favor).
However, make sure to do your research and get a card that’s easy to manage.
2. Make Timely Payments!
This is the key tip that can help you build your credit quickly. Your payment history covers quite a considrable percentage of your credit score. So, you must make a habit of paying your bills on time.
Related Article: Best Way To Pay Your Credit Card Bill!
3. Keep Your Credit Limit Low!
It might sound weird to start with a low credit limit in your credit-building journey. But trust us, it’s really helpful for your credit profile. Managing the credit card will be easier.
Also, a low credit limit can help you keep a low credit utilization ratio which in turn can push your credit-building process.
4. Find Newcomer Packages!
Lenders are aware of the fact that how difficult it can be to build a credit history from scratch. So, some banks and lenders might offer special cards or rates for newcomers to help them settle in the country better.
Ask around your friends for a recommendation. Or, you can search online to find programs that help new immigrants in Canada.
Moving to a new place and settling in just fine feels daunting. Moreover, the rising inflation makes it even harder to go with the flow. You have to start everything from scratch, you need to earn, pay bills, and also save for your future.
In all that, thinking of building credit seems like a long-lost treasure. But, like, is it that important? Can’t you survive without credit just okay?
Moreover, You just can’t grasp how you can make things work in your favor. How can you get a card and build your credit without compromising your finances and peace?
We have got a gift for you! Yes!
This guide has everything you need to know. So, give it a read and find all the tips and tricks that can help you build your credit as a newcomer in Canada.