How can new immigrants increase their credit score?

As a new immigrant to Canada, you have a lot on your plate. You have to find a new home, a new job, and perhaps even a new wardrobe that’s suitable for those cold Canadian winters.

On top of all of that, immigrating to Canada often means that you need to start some aspects of your financial life from scratch. In fact, while you can transfer your savings and other assets to a Canadian bank, there’s one thing you can’t take with you when you immigrate: your credit score.

While a credit score might not seem like a big deal when you immigrate, you will eventually need a solid credit history if you want to make the most of life in your new home. However, increasing your credit score as a newcomer to Canada is no easy feat.

To help you out, we’ve put together this guide to everything you need to know about building your credit score as a recent immigrant to Canada.

How does a credit score work in Canada?

Depending on where you immigrated from, the idea of a credit score might be completely novel to you. While some countries, such as the United States and Australia have credit scoring systems that are similar to Canada’s, many other countries don’t use these metrics.

Either way, the credit score you had before immigrating won’t make much of a difference. That’s because Canadian credit scores only take into account your history of borrowing money and repaying debts in Canada. Anything that happened in your financial life before settling here doesn’t really matter for your score.

For some people, starting out with a clean credit history can be a benefit and for others, it can be a frustrating challenge. However, now that you’re in Canada, it’s important that you understand how credit scores work in your new home.

Credit scores in Canada are numerical rankings that describe how safe or risky it is for a bank to lend you money. These scores range from 300 to 900, with higher scores indicating that you’re a reliable person to lend money to.

Since Canadian credit scores are produced by two privately owned credit bureaus—Equifax and TransUnion—no one really knows how scores are calculated. But we do know that your credit score is determined by a number of key factors, including:

• Length of credit history

• Types of credit you have available

• Amount of available credit vs. how much credit you use

• How consistent you are at paying back debt

• Prior history of bankruptcy

• Recent credit score inquiries

The idea is that people who have a long history of paying back their debts on time and in full tend to have better credit scores. Anyone who frequently misses loan payments or anyone that consistently maxes out their credit cards is likely to have a lower score—as is anyone with relatively little credit history, like a newcomer.

Credit scores in Canada are a pretty big deal because they can dictate whether you get approved for a credit card, personal loan, or a mortgage. In fact, poor credit can even hurt your chances of securing a lease on an apartment and prevent you from getting a job! So, having good credit and maintaining it is of the utmost importance.

How to build a credit history in Canada as a newcomer

Now that you understand how Canadian credit scores work, you likely recognize that building a credit score is important for this next chapter in your life. But newcomers are already at a disadvantage when it comes to credit simply because they don’t have any credit history.

So, what’s a newcomer to Canada supposed to do? Here are 8 straightforward ways to build your credit history as a new immigrant to get you started:

1. Use KOHO’s Credit Building tool

In Canada, you need to have good credit to access many financial products, like credit cards, loans, and mortgages.

However, many of these same financial products are essential for building a credit history. This means that many newcomers to Canada are stuck in a Catch-22 where they can’t access the credit cards and loans they need to be able to build up a credit history in the first place.

Thankfully, there’s a way to start building your credit history as soon as you land in Canada: KOHO Credit Building.

This tool allows you to build up a credit history with KOHO for just $10 per month without taking on any debt. To use it, you simply need to subscribe to Credit Building in the KOHO app. Then, you need to maintain at least $10 in your spendable account each month to cover your subscription costs.

In exchange, KOHO will report your progress to major credit bureaus on a monthly basis. This helps build your credit history and establish some credibility with Canadian lenders.

2. Get a monthly cell phone plan

Although cell phone plans aren’t a form of credit, many Canadian phone providers will report your monthly payments to credit bureaus. Doing so provides credit bureaus with a glimpse into your debt repayment habits. So, paying your phone bill on time each month can help you build credit with relative ease as a new immigrant in Canada.

Do keep in mind that cell phone-based credit building only works if you have a monthly phone plan—not a prepaid plan. You’ll also want to check with your phone provider to ensure that they will actually report your payment history to credit bureaus. Some companies won’t automatically report your payments, but you can usually request that they do so on your behalf.

3. Ask your landlord to report your rent

As with your cell phone plan, your monthly rent isn’t technically a form of credit. But you can usually ask your landlord to report your rent payments to credit bureaus so that you can improve your credit history. Of course, this also means that missing a rent payment could hurt your credit score, so don’t forget to stay on top of your rent! Paying your bills on time each month can pay dividends in the long run.

If your landlord won’t report your rent for you, don’t fret: you still have some options. There are a number of companies that offer to report your rent payments to credit bureaus, such as the Landlord Credit Bureau and RentTrack. But keep in mind that many of these services do charge monthly fees, so don’t rush into anything without knowing what you’re signing up for.

4. Apply for a newcomer-specific credit card

Many Canadian banks and financial institutions know how challenging it can be to establish a credit history as an immigrant. To help you get off to a good start, some banks offer banking packages that are specifically designed for newcomers.

Most of these immigrant-friendly banking packages come with low-cost or free access to a chequing account. Some also allow you to apply for your first Canadian credit card, even if you don’t have any credit history. These newcomer-specific credit cards can be a major bonus for new immigrants who might otherwise have to wait years to build up a solid credit score.

5. Open a secured credit card

If you’re having a hard time opening a credit card without a strong Canadian credit history, a secured credit card just might be what you need.

A secured credit card is a form of revolving credit that requires a security deposit. Depending on the card in question, you may have to fork over anywhere from $250 to $1000 to open your account. This money is then held as collateral, just in case you miss your monthly payments.

If you make your payments on time and in full every month, your money will be kept in escrow until you close your account. Along the way, your secured card will help you build up a strong enough credit score so that you can apply for an unsecured card down the line.

6. Take out a car loan

Although many people think of credit cards when they hear the words “credit score,” the reality is that there are many different types of credit. Having multiple types of credit, such as revolving and installment credit, can boost your long-term credit score.

These terms might seem a bit confusing, so let’s break them down.

Basically, revolving credit is any type of credit line that you can borrow from up to a given limit with the expectation that you pay off your balance every month. The best example of this is a credit card.

Installment credit, on the other hand, is a type of credit line where you get a lump sum of money upfront. You’re then expected to pay off this lump sum (plus interest) on a regular basis. There are many types of installment credit, but the most common are car loans, student loans, and mortgages.

Although newcomers to Canada also have access to mortgages and student loans, they aren’t common loans to take out within your first few months in a new country. However, if you live in a car-dependent neighbourhood, buying a car and taking out a loan can help your credit history.

As an added bonus, some Canadian banks also offer car loans to newcomers who don’t yet have a credit history. Just be sure that you work your monthly car payment into your budget plan to ensure that you’re not taking on more debt than you can afford.

7. Pay off your bills in full every month

If you want to build your credit score in Canada, you need to pay your bills in full and on time every month. Regardless of whether you’ve lived in the country your whole life or if you just arrived yesterday, missing credit card payments is a sure-fire way to drag down your score.

So do yourself a favour and make a commitment to pay your bills on time. Setting up automatic payments for your credit cards or automatic withdrawals from your KOHO account for other bills can make this process as seamless as possible.

Trust us, your future self will thank you for your bill-paying diligence.

8. Check your credit report regularly

While credit bureaus are normally pretty good at accurately compiling your credit history, there’s always a possibility for errors on your credit report. Since even the slightest inaccuracy on your report can derail your score and prevent you from getting a loan in the future, you’ll want to pay close attention to your report on a regular basis.

There are a number of ways to check your credit score in Canada; free apps like Borrowell are among the most popular. If you check your score using these services, be sure to look it over for any discrepancies. If you find an error, you can file a dispute with either Equifax or TransUnion to remove the issue from your report.

Building Canadian credit, one step at a time

The thought of having to build a credit history from scratch as a newcomer to Canada might seem overwhelming. Thankfully, you have plenty of tools, like KOHO’s Credit Building, at your disposal to kickstart your financial life in Canada. The key is to be diligent about maintaining healthy money habits so that your credit score can be as strong as possible.