Building your credit history in Canada as a newcomer is vital. First, and most obviously, you need to open a savings and chequing account at your local bank or credit union. This shows that you have money and are starting to establish roots.
If you have a larger sum of money to work with, the bank can hold a certain amount as security (a fixed deposit) and give you a credit card against that amount. For example, I negotiated with my bank and they eventually agreed to a $2,000 deposit (at first they wanted $3,000) and gave me a $1,000 credit card limit.
Another step you can take is to apply for a secured credit card. You can make a deposit upfront, possibly the same amount as your credit limit. You can start with a small amount and you can use it like a regular credit card to make purchases. When you make payments on time, you begin to build a good rating. If you default on your payments, the lender will use your security deposit to pay off your balance.
Additionally, many large Canadian banks and credit card companies offer newcomers cards with low limits to establish credit history. Some require an annual fee and some might have special offers that waive the annual fee for the first year.
It is important to find out whether your bank or other financial institution reports to the two nationwide credit bureaus, Equifax, and TransUnion. If they do not, then you will not be able to establish a credit history.
Building good credit takes time. If you use the card wisely and pay the balance in full each month, for example by paying your bills (mobile, internet, hydro) on time, you will begin to establish your history.
According to Transunion, applying for numerous cards all at once might damage your credit scores right from the start. Many hard credit inquiries indicate that you may be taking on too much debt and will have a lot of repayment responsibility and risk. Instead, apply for just one manageable card.
Examples of hard inquiries include a:
- Credit card company checking your credit after you applied for a card or a bank loan
- Company checking your credit before leasing you a car or before applying for a car loan
- Company checking your credit before purchasing a mobile phone plan
The key thing to remember here is that you should know when hard inquiries are about to happen. Your credit can’t be accessed for this purpose without you agreeing to it in writing.
Establishing a good credit history from the start can be beneficial for you later when you want to qualify for an auto loan or a mortgage.