How to build credit in Canada

Borrowing time

How to build an impressive credit score fast

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This article was updated on June 27, 2017.

When Eran Barlev, a new immigrant from Israel, opened his first bank account in Canada 11 years ago, he didn’t understand why the bank wanted to set up his wife Ella with her own credit card, rather than taking out a second card in his name. “They said it would be good when we bought a house,” says Barlev, a 42-year-old technology trainer who lives in North York, Ont. “That was so far away in my mind, but we did what they recommended.” Several years later, when the couple went to a mortgage broker to finance their first home in Canada, the broker was surprised to find that both newcomers had excellent credit scores. By using their own credit cards regularly, and paying all their bills on time, the couple was able to get approved for a mortgage and get a competitive interest rate. The North York bungalow they purchased is now home to four: Eran, Ella, their eight-year-old son Ilai, and their six-year-old daughter Rona.

The credit system in Canada is notoriously unfriendly to newcomers. Immigrants are often disappointed to learn that the credit histories in their home countries are worthless. For some, the whole idea of building up a good credit history is foreign. Building credit is the number one challenge for new immigrants. In a report commissioned by the Metropolitan Immigrant Settlement Association (MISA) of Halifax, Nova Scotia, 93% of new immigrants “encountered problems establishing a credit history.” Reports author, Nabiha Atallah. She explains: “The majority of immigrants first learn about Canadian credit history three months after their first arrival to Canada.” While some learned from information provided by friends, others found out the “hard way” when financial institutions rejected their loan or mortgage request.

Your first Canadian credit card

If you’re still in your home country and planning to immigrate to Canada, it’s worth looking at developing a relationship with a global bank. Many large banks now have partnerships or branches in multiple countries. To find the best option, ask your local bank what packages they offer for globally minded citizens. Bank accounts that allow you to apply for mortgages to purchase property in various countries or loans that can be accessed and used in Canada will help you build credit in both your country of origin as well as Canada. Another option is to talk to your bank or credit card provider to find out if you can transfer your credit card history and use to Canada.

Once you arrive in Canada, try to get a credit card quickly. If you’re meeting with a bank manager, bring any documents that show you have a good track record for paying your bills. Some banks have multilingual staff who can assess foreign documents.

If you’re turned down, ask about getting a secured card, where you give the issuer a deposit. It’s also a bit easier to qualify for cards from department stores such as The Bay and Canadian Tire, but be sure to pay off the balance each month, as these cards have very high interest rates.

If you’re coming from the U.S., your credit history can’t be combined with your credit history in Canada, but that doesn’t always mean you need to start from scratch. Ask your credit card company to call the credit bureaus in the U.S. to get your credit history. It doesn’t always work, but it’s worth a shot if you are faced with no credit history at all.

Once you’ve got a card, be sure to use it. “New immigrants who aren’t used to having credit cards tend to use it only for emergencies,” says Nick Noorani, a Vancouver-based immigrant entrepreneur who gives workshops on the secrets of immigrant success in Canada. “If you keep the card in your wallet and don’t use it, you’re not building your credit. When you get a card, start using it every month and pay off the entire amount each time.”

Rodolfo Martinez, a former financial planner and current executive director of the Ontario Immigrant Network, advises newcomers to take out one or two credit cards or lines of credit that total around $3,000. “Make sure you make at least the minimum payment each month, and if you have to carry a balance, never let it go over half of your available limit.”

The irony is that once immigrants do establish a good credit rating, they can be flooded with credit card offers. At first Fernando Margueirat, an immigrant from Buenos Aires, Argentina, was rejected from getting a card at virtually every major bank. But after finally getting one and using it responsibly for a few years, he was swamped with applications. “It was kind of comic, because I got excited and started applying for cards. At one point, I had twice my annual salary in credit.” Margueirat decided to close some accounts before applying for a mortgage. Before you opt to take this move, talk to a mortgage broker. Sometimes shutting down access to credit can change your debt ratios and this can hurt you when applying for a mortgage.

Just remember that your credit card is part of your plan to become financially stable in Canada. While credit is important, in terms of getting established in Canada, it’s also driven many into a cycle of debt that has crippled their future. Credit card interest rates in Canada are high compared with other sources of debt, so never purchase something on a card that you can’t pay off quickly. You can find the best card based on your spending patterns by visiting our website at: www.moneysense.ca/creditcards.

THE COMPLETE GUIDE FOR NEW CANADIANS:

1. Overview
2. Get job experience
3. Build a credit score fast
4. Property buying tips
5. Pay less tax
6. Invest wisely
7. Insurance to buy
8. Finding childcare
9. Avoid scams
10. Free resources
11. Getting started checklist

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