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The Basics of Credit for Immigrants and Newcomers to Canada

Use credit wisely, manage money carefully and become familiar with the financial system in Canada

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Q: We have been hosting a Ukrainian family in our rental suite for about two years and they have become like family to us. They recently decided to stay in Canada permanently. Until now, credit hasn’t been a problem, but now we’re helping them get established and take root financially. We thought changing one of the utility bills in their name would be a good start, even if we helped them pay for it. But then a friend said that utility bills don’t count toward a credit rating. It’s been a long time since we started using credit, so we don’t want to give them the wrong advice. What should we take into account? – Valerie

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A: Whether you are a Canadian citizen, permanent resident or recent immigrant, building credit takes time, patience and consistent effort. Even for those who immigrate from countries with a credit reporting system similar to Canada’s, setting a Canadian credit rating means starting over, because credit ratings don’t follow a person from one country to another. With that in mind, here are the steps a newcomer to Canada can take to strengthen themselves financially and build strong credit.

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Appreciations don’t follow you, but habits do

While credit ratings don’t follow you around the world, financial habits do, so it’s important for a newcomer to set up a money management system. This can be challenging depending on where they come from and the customs they have developed in their home country. Many countries still rely on cash for the majority of their retail transactions and do not enjoy the same stable and regulated banking and financial systems that we have in Canada. There are countries where cultural or religious considerations influence the lending system, and others where less formal lending arrangements are the norm.

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Distrust of government financial institutions in their home country may deter an immigrant from settling in Canada, but it is important to open a bank account nonetheless. Although a bank account is not reported to the credit bureaus, certain details contribute to a credit file. For example, if someone does not already have a Canadian credit file, the initial credit check clearance when opening a bank account will create a new credit file for the applicant. If overdraft protection is added to the account, it is a form of credit and can be reported.

A bank account is an important tool. It keeps money safe, and having more than one account can help with budgeting because it can keep routine spending money separate from savings. An account allows a person to receive timely salary payments or government assistance and stay on top of paying bills on time. Most banks and credit unions offer services for immigrants to Canada, but make sure you look for the right account with low fees and support for additional services. A newcomer will want to build a positive relationship with a particular financial institution to assist with future lending and investment needs.

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Organize your bank accounts to better manage your expenses

Buy a cell phone with a contract

Staying in touch with family and friends, looking for a job or place to live, applying for services, making appointments or keeping in touch with the children’s school, are all essential reasons to apply for a mobile subscription. Some providers do not require a credit check, but report payment history to the credit bureaus. Although regular household utility companies do not report account activity to the credit bureaus, paying your cell phone bill in full and on time each month is reported and is one of the fastest ways to build a positive credit rating.

Cell phone plans in Canada aren’t cheap, but there are options to keep bills reasonable. Bringing your own device or purchasing a well-used device, rather than a new phone with a payment plan, will help, as will choosing a discount carrier. It can help to join a local Facebook group to see which discount providers have strong signals in your area. Then choose the most basic plan that meets the needs of the entire family, including enough service so that a student can use the specific apps they need for school.

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Apply for your first credit card

Credit cards are excellent tools for building credit, but avoid the mistake that too many credit card holders make. Having more credit cards does not mean better credit. It only takes one credit card with a reasonable credit limit and continued use to build credit. Pay it off in full every month to prove your solid credit and never miss the minimum payment on time again. Credit cards are not free money; keep the outstanding balance below about 60 percent of the credit limit and stop transacting with the card if paying it off in full becomes problematic.

If you’re new to Canada, look for credit cards designed specifically for newcomers or those with limited credit history. A secured credit card, which requires a deposit usually equal to the credit limit, can be an excellent option if getting a traditional card isn’t possible. Check with your bank or credit union to see if they offer cards for immigrants, or refine your search with the Financial Consumer Agency of Canada’s credit card comparison tool.

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How are credit scores calculated in Canada?

The most important thing in getting credit in Canada if you are a newcomer

Settling in a new country is a time of excitement and stress, mixed with practical challenges. Whether you are an international student, skilled worker, visa holder or permanent resident, obtaining credit responsibly is essential to your future financial stability. But just as important is protecting your income and not supporting loved ones at home with more than you can afford to send back. People at home often have trouble realizing that while wages may be higher in Canada, costs here are also high. Leaving you penniless will harm your health and negatively impact your ability to send money home at all. Furthermore, newcomers who become indebted and bankrupt cannot sponsor a loved one to move to Canada until they are laid off. Use credit wisely, manage money carefully and gradually become familiar with the financial system in Canada. A conservative approach will pay off in the long run.

Related reading:

Frequently asked questions about hard versus soft credit checks

What not to do when money is tight

What to do if helping family abroad lands you in the poor house

Peta Wales is president and CEO of the Credit Counseling Society, a nonprofit organization. For more information about managing your money or debt, contact Peta by email, visit nomoredebts.org or call 1-888-527-8999.

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