If you’re among the 250,000 people who immigrated to Canada this year, this is for you. Whether you’re here for life, study, or business, building a good credit score is essential. A good credit score qualifies you for the best interest rates available on loans and provides favourable access to credit cards down the road. It unlocks many savings and benefits and ensures your financial health. In this article, we will share a few key tips to help you build a good credit history as a newcomer in Canada and where you should get started, and help you get access to your credit score and use a credit report.
GETTING STARTED - HOW TO GET A CREDIT CARD IN CANADA
To get started with building your credit history, applying for a Canadian credit card is of great importance. Many of the big banks offer immigrants a credit card when you open a newcomer account with them as part of their initial banking package. You might apply for an unsecured credit card which takes no account of credit history. For this, You may want to visit Royal Bank’s “Welcome to Canada” package or Scotia’s “Start Right” program for possible options. However, once you are not found eligible for this position, you need to apply for a secured credit card, which requires a refundable security deposit with respect to the card’s credit limit. This usually suffices to get you started on your journey of building a good credit history in Canada. and it is a great fit for responsible cardholders who leave no stones unturned to improve their credit scores.
WHAT IS A CREDIT SCORE?
Once you open a newcomer account and start your financial activities, certain information is shared with a credit bureau as your credit history. Over time, additional information, such as on-time or late bill payments, possible missed payments, and the amount of debt you have outstanding, will be shared with the credit bureau and ultimately formulate your credit score.
The Credit score is a three-digit number ranging from 300-900, and it is based on your payment history and the ability to repay your debts on time as shown in your credit report. Therefore, the higher your credit score is, the lower the risk is to the bank and you’re more welcomed for interest rates and benefits. For example, a score under 750 will likely make it more difficult to acquire loans or credit cards, and possibly results in lower credit limits and higher interest rates. To build your credit score faster, You can get help from some tools to help you. MyMarble is a tool that analyzes your credit score and payment habits to make customized recommendations with an actual plan to help you increase your score as well as have access to your other credit building tools like Score Up and Fast Track Loans.
Given the importance of your credit score, we have provided some valuable tips to consider for improvement:
PAY YOUR CREDIT CARD BILL ON TIME AND PAY OFF YOUR BALANCE IN FULL EACH MONTH:
To build a good credit history, it’s of vital importance to make on-time payments or make them before the due date. In fact, 35% of your credit score is based on your payment history, and past payment performance is oftentimes considered as a good predictor of future performance . Therefore, paying the monthly minimum payment which is shown on your credit card statement is an indicator of how reliable you are with paying your bills when lenders review your credit report.
Besides making your payments on time, it’s best to pay off the balance in full each billing cycle. Although carrying a balance and making your payments on time will help your credit history, we would never recommend carrying a balance just to build your score. In addition, using your credit card and paying it off every month also helps you avoid racking up credit card debt.
USE CREDIT WISELY
The rule of thumb for a strong credit history is to stay within your credit limit. You should spend what you can afford to pay back on all your credit products, which usually includes less than 35 percent of your total credit in each billing cycle. This is so since spending more than the authorized amount on your credit card would downgrade your credit score. If you use your credit card for small routine activities like groceries, phone bills, etc, you are more likely to build a strong credit history.
GET DIFFERENT TYPES OF CREDIT: CARD, LOAN, LINE OF CREDIT
The credit bureaus love people with different sources of credit such as a credit card, line of credit, or loans. As a newcomer to Canada, you are expected to start off with a single credit card and apply for other credit products at a later stage. As you become more established in Canada, you will grow skills to fully manage and diversify your credit card, cell phone, or car loan (favourably with a large deposit). Getting different types of credits will help you build a credit history with a strong score.
In addition to the tactics mentioned above, there are several other factors that have an impact on your credit history after it’s been established in good standing for a period of 18 months. This might include your savings history, net worth, income and ability to provide a security deposit, such as a down payment on a mortgage. These factors should go hand in hand to establish a strong credit history for newcomers here in Canada.
CREDIT REPORT: WHY AND HOW TO USE IT
Once you get started on building a good credit history, it is of paramount importance to check your credit report to provide a wider understanding of your performance.
You can get a physical copy of your credit report which takes some time to be delivered or you can apply for a virtual copy of it which can be obtained immediately. Most often, you are required to pay a fee when you order your credit score online from TransUnion and Equifax. However, you can also place your order online by phone, mail, or fax and use the free version only available as a physical copy.
REPORT ANY INACCURACIES ON YOUR CREDIT REPORT
Once you get your credit report, it is essential to check it for possible discrepancies and errors. In fact, errors in your credit card and loan accounts, such as false information on a payment you made on time but is depicted as late would influence your credit score negatively. Accordingly, it is almost crucial to check your credit on a regular basis to spot potential inaccuracies before they impact your credit rating. Other considerations in your credit report might include mistakes in your personal information, such as a wrong mailing address or incorrect date of birth, accounts listed that you never opened, and negative information about your accounts that is still listed after the maximum number of years it’s allowed to stay on your report. Any inconsistencies or incidents of fraud should be reported to the respective credit bureaus without any delay.
HOW LONG DOES INFORMATION STAY ON YOUR CREDIT REPORT?
The extent to which information lasts on your credit report varies across credit cards and the type of data. While positive information tends to stay indefinitely, from when it was created, negative information such as late payments or defaults remains on your credit report for six years. There is also some information that may stay for a shorter or longer period of time. You will find further information about timelines for specific cases on the Financial Consumer Agency of Canada website.