Credit building in Canada is essential especially if you are a newcomer in Canada, for a stable financial future, especially if you want to stay in a foreign country for much longer. Good credit will enable you to access financial products such as loans, mortgages, and credit cards. Unfortunately, building credit from scratch is difficult, mainly because you’re still unfamiliar with the Canadian financial system.
This blog will provide tips on establishing credit and why it is important.
As a newcomer in Canada, there are challenges you might encounter when credit building. These may include:
1. Lack of Credit History
Without a credit history, lenders may not have enough information to assess your creditworthiness. It will be hard for them to approve your loan application.
2. Limited Income
You may not have a stable job yet if you are a newcomer in Canada. It will be hard to apply for loans since your income is low and unstable.
3. Unfamiliarity with the Canadian Financial System
It can be difficult to navigate different financial institutions, products, and regulations when new to a country.
Why is Credit Building Important as a Newcomer in Canada?
Establishing credit is important for various reasons.
1. It helps build your credit score.
A three-digit number that indicates your creditworthiness is your credit score. It is used by lenders to determine your ability to repay debts. A good credit score can help you qualify for better interest rates and terms on loans and credit products,
2. Renting, Applying for a job, and/or buying a car.
Landlords, employers, and lenders will often check your credit report before making a decision, and having good credit can be the deciding factor.
How to Establish Credit as a Newcomer in Canada
Establishing new credit as a newcomer can be challenging yet not impossible. Tips to get you started:
1. Apply for a secured credit card.
A secured credit card is the best option to build credit. It is the same as a traditional credit card; the only difference is that you must put down a deposit as collateral.
This deposit acts as security for the lender, and in turn, you are given a credit limit equal to the amount of your deposit. Using a secured credit card responsibly can help you build a good credit history and improve your credit score.
2. Apply for a Credit Building Loan
A credit-building advance is a kind of credit intended to help individuals establish their credit. These loans typically have short repayment terms and low-interest rates. You can improve your credit score and build a credit history by repaying a credit-building loan on time.
3. Obtain Authorization to Use Another Person’s Credit Card
If you have family or friends in Canada with good credit, you can ask them a favour and be an authorized user. Choosing someone responsible for their payments is important as it will reflect on your credit score. It will be a great start to build your own credit.
4. Pay Bills on Time
Paying bills on time is crucial. Your repayments have the largest percentage that affects your credit score. Even if you lack credit products, paying your bills on time can help you build a good credit history. Utility bills, phone bills, and rent payments can all be reported to the credit bureaus and help you establish a credit history.
How to Maintain Good Credit?
Building good credit is not the only goal you should have if you are a newcomer in Canada; maintaining your credit is also vital.
1. Keep your bills updated.
Late payments will hurt your credit score. Ensure you pay your bills on time, every time.
2. Keep Credit Utilization Low
Credit utilization is the amount of credit you use compared to the available amount. Keeping your credit utilization low can help you maintain a good credit score. Ideally, it would help if you aimed to use no more than 30% of your available credit.
3. Monitor Your Credit Report
Errors and Fraudulent activities are common on credit reports. Checking your credit report regularly will help you track these errors and be able to dispute them early. You are entitled to a free credit report from each credit bureau (TransUnion, Equifax) once a year.
4. Don’t apply for Too Much Credit at Once
Applying for new credit will require hard inquiries, negatively impacting your credit score. Only apply for credit products that you need and can afford.
To sum it up, building credit is crucial for your financial future in Canada. It may seem not easy at first, but there are ways to establish credit, such as getting a secured credit card or becoming an authorized user of someone else credit card.
Once you have established credit, pay your bills on time, keep your credit utilization low, and monitor your credit report. Remember, good credit takes time and effort, but it’s worth it for the financial opportunities it can provide. Consulting a credit building advisor can be a good choice too.