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Building Your Credit Score When New to Canada

Credit & Debt
credit score Canada newcomers

For many newcomers to Canada, the idea of a credit score is often new to them. When you arrive in Canada, you would not have a credit score because you don’t have any history yet. 

Arriving in a new country can be exciting but also come with its challenges. One of those can be navigating the financial side, especially when it comes to credit, often leaving people feeling confused and overwhelmed.

Many newcomers to Canada are often looking for better opportunities or quality of life and having a good understanding of financial literacy will assist them with a positive experience in the future to help their family.

arrivals Canada newcomers credit score

What is a Credit Score?

Your credit score and profile is like your financial reputation, and it tells about your creditworthiness, or how much risk you might be to lenders or creditors if they allowed you to borrow. It contains details about your credit history, payment history, types of credit used and credit inquiries made that contribute to your overall credit score number. The credit bureaus keeping track of your credit score in Canada are TransUnion and Equifax. 

Why Your Credit Score Matters in Canada

Your credit score can impact your financial future in many ways, from your ability to get a personal loan for a car, home, big purchase or other expense, to getting a credit card, mobile phone plan, rent an apartment, opening a utility account, and even your ability to get a job at times. There are a few ways how bad credit can affect you and create a need to put your plans on hold if you are unable to get financing for certain plans in life. 

Your credit score has a lot to do with the interest rate you might qualify for when looking to borrow. The higher that your credit score is, the lower the interest rates usually are. When looking to borrow in the future, you have the option of banks, credit unions and online lenders to choose from. 

What is an Average or Good Credit Score

An average credit score range for many Canadians is often between 660 to 724 and considered good. From 725 to 759 is very good, and 760 or more is excellent. A credit score in Canada can be from 300 to 900 points, and the higher the number the better your rating or score.

It takes time to build your credit score, and you should target things in a progressive way to work towards. Since newcomers would not have credit history, they would be starting from the bottom. In fact, without credit history, they would not have a score. To set goals for yourself, we suggest targeting a 600 credit score first, then 650, 700 and so on in increments of 50 points. 

How to Improve Your Credit Score

From limiting the number of credit inquiries for new accounts to making payments on time, there are many small things that add up to building and maintaining a healthy credit score. You should also ensure that you do not carry too much debt, especially if you were planning to apply for a loan. If you are making loan payments, and based on your income, living expenses and what you owe, a lender might not find you eligible to borrow. Maintaining an acceptable debt to income (DTI) ratio while working on improving your score can be beneficial later as well. 

Read more on improving your credit score here so you can take the necessary steps to building a better credit score for the future.

How to Protect Your Credit Score

To keep your score in good standing, you should practice the following:

Payments – always pay your bills on time, it’s a big factor with your score

Inquiries – keep the number of credit inquiries to a minimum.

Monitor – keep an eye on your credit profile for errors

How Long Does It Take to Build My Credit Score

Even if you do everything right, it can take years to build your credit score to an excellent rating. This is your financial reputation, which takes time, and won’t happen overnight. Which is another reason why it’s important to monitor and manage things as well. 

Newcomer Credit Score Myths

Some that recently moved to Canada make assumptions about credit scores, and these are a few of the more popular myths to be aware of.

  1. Your credit history from your home country counts in Canada – false
  2. Money in your savings account would count towards your score – false
  3. Credit scores are not important, you don’t need it unless you use credit – false
  4. A credit score is based on your overall income – false
  5. More credit cards is the best way to improve your score – false
  6. Your score will be the same with all credit bureaus – false
  7. Checking your score can lower it – false

Quick Credit Score Tips to Start

If you keep a few suggestions in mind, you will be on the right path to establishing a credit score and improving it for when you need it later. 

Your first credit card – You can try getting a secured or unsecured credit card through one of the big banks with a low credit limit to get started. Some to look into include the Royal Bank’s “Welcome to Canada” package, the BMO NewStart Program, the CIBC Smart Account for Newcomers, or Scotia’s “Start Right” program.

Mobile plan – Getting a cell phone or mobile plan can be difficult if the provided wants to look at your credit history and you don’t have one. Fortunately, there is an option with Telus where no credit history is required to get an account. This plan will also report your payments to credit bureaus and help you improve your credit score. They will have you sign for a term, usually 2 or 3 years, and after that you should have a much better credit score and can explore other options from Rogers and Bell to Shaw or other providers. 

Get it Reported – If you are renting, you could try to get your landlord to report your rent payments to help boost your credit score through the Landlord Credit Bureau. 

After you have started to make payments on time for several months it is advised that you take a look at your credit profile to ensure the information is correct. Having errors on your report can sometimes have a negative impact, so checking that the information is correct is an easy task and if there are errors, you can report them to possibly improve your score. 

You can get a free credit report from Equifax or TransUnion along with some of the major banks like RBC, BMO, CIBC, Scotiabank and others. With the banks you will likely need to be a customer and log into your account.

Reporting credit report errors is known as filing a dispute and you would do so online here:

It is advised that you monitor your credit profile on a regular basis, especially since the smallest inaccuracy or error can impact your score. 

After you have started to get your credit profile and score established, in a few months it could be worthwhile to look into taking a small installment loan and paying off to add to your mix with different lines of credit. If your overall score is low, you can expect higher interest rates. Your options would be to either pay the rates or try to improve your score so you might qualify for better rates later. Depending on your score, it isn’t unheard of with installment loans that the interest rates could be as high as 30% or 40% annualized percentage rate (APR) in many cases. 

Credit Score Mistakes to Avoid

Keep Balances Low – avoid running up lots of debt on your credit card and carrying a balance. Your credit utilization rate can affect your credit score. While your DTI does not directly affect your credit score, it can be another factor that lenders or creditors may look at. As a general rule, you should keep your credit card balance below 30% of the limit. Below 10% may have extra advantages with some lenders.

Closing Accounts – if you have a credit card that you no longer use, you should not close the account. It would reduce the amount of credit available. This could cause your credit utilization ratio to increase and your credit score to go down.

New Accounts – when you are trying to build or improve your score, avoid applying for any sort of new unnecessary credit accounts. These inquiries can add up and impact your score. 

In closing, we will mention again that making payments on time is important, and being late would be another mistake regarding your credit score. Even worse would be to default, which could impact your credit report for a long time. 

We also suggest that you begin using a budget and build an emergency fund to have on standby in case you need it. It’s better to have and (hopefully) not use than to need but not have emergency funds. 

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Making sense of finance one day at a time.

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