Building a strong credit score in Canada is essential for financial stability. Your credit score affects your ability to rent an apartment, get a loan, finance a car, or even secure some jobs. Here’s how you can build your credit from scratch as a newcomer.
1. Apply for a Credit Card
Many banks offer credit cards for newcomers without requiring a Canadian credit history. Consider options like secured credit cards or those designed specifically for new immigrants. Use your credit card regularly for small purchases and pay off the balance on time.
2. Pay Your Bills on Time
Your payment history is the most significant factor in your credit score. Make sure to pay rent, utilities, phone bills, and any loans on time. Setting up automatic payments can help avoid late fees and missed payments.
3. Keep Credit Utilization Low
Credit utilization is the percentage of your available credit that you use. Try to keep it below 30% of your credit limit. For example, if you have a $1,000 limit, avoid spending more than $300 before making payments.
4. Avoid Applying for Too Many Credit Accounts at Once
Each time you apply for a new credit account, a hard inquiry is recorded on your credit report, which can lower your score temporarily. Apply for credit only when necessary.
5. Get a Mobile Phone Plan or Utility Bill in Your Name
Some service providers report payments to credit bureaus. Having a phone or utility bill in your name and paying it on time can help build your credit.
6. Apply for a Small Loan or Credit-Builder Loan
Some banks and credit unions offer credit-builder loans, designed to help newcomers establish credit. Making regular payments on these loans improves your credit history.
7. Check Your Credit Report Regularly
In Canada, credit scores are managed by Equifax and TransUnion. You can request a free credit report once a year to check for errors. Fixing inaccuracies can prevent unnecessary damage to your score.
8. Build Credit with a Co-Signer or Authorized User Status
If you don’t qualify for credit on your own, you can ask a family member or friend to co-sign a loan or credit card. Alternatively, becoming an authorized user on someone else’s credit card allows you to benefit from their positive credit history.
9. Maintain Long-Term Credit Accounts
The length of your credit history affects your score. Keep your oldest credit card open, even if you don’t use it often, to maintain a longer credit history.
10. Be Patient and Consistent
Credit scores take time to build. By consistently making payments on time, keeping balances low, and avoiding unnecessary credit applications, your score will improve over time.