Building Credit New Immigrants Canada

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During their lifetimes, most Canadians borrow money from a bank to help them make an important purchase, such as a home, car or higher education. They then repay the money over a period of time with interest.

Businesses also borrow money to help get the company started or to help expand the business. This system of lending and borrowing is called credit: “personal credit” for individuals, “business credit” for businesses.

As a newcomer to Canada, it is important for you to understand how credit works and to build a good credit rating. The first step is to start building your credit history as soon as possible.

What is credit history?

Your credit history is one of the factors that a financial institution will consider when you apply for a credit card, loan, line of credit, or mortgage. Your credit history is information on your ability to pay back money you have borrowed. A good credit history will show that an individual was able to repay money borrowed, on time. Missed or late payments will result in a bad credit history, making it difficult to borrow money in the future.

How can you build good credit?

In order to help you build a credit history in Canada, you will need to apply for credit, which can be challenging when you are new to the country. One of the best ways to do this is to apply for a credit card. You can use your credit card to pay for purchases, as an alternate to paying cash. Each month, the credit card institution sends you a statement telling you how much you spent on your credit card, and the minimum amount you need to pay back in order to keep the account in good standing. If you do not pay the full amount shown on your statement, you are charged interest. Be aware that interest rates for credit cards are generally higher than those on other forms of credit, such as loans or lines of credit. Therefore, it’s important to manage the use of credit cards carefully and to try and pay off balance in full each month.

One of the challenges that most newcomers face is getting approved for a credit card. Since most newcomers do not have a credit history in Canada, finding an institution that will lend them money is difficult. As a result, building a credit history can be hard, at first.

At TD Canada Trust, we help our customers build a credit history by offering a secured credit card. It gives you all of the advantages of a credit card, but requires that you set aside a certain amount of money or other cash-like asset to provide the bank with the security that you will pay the money back. For example, if the bank gives you a secured credit card with a spending limit of $1,000, you could set aside $1,000 in a short-term investment, which the bank will hold as security. Over time, you can build your credit history by paying your credit card bills on time, and eventually your credit rating should be high enough that you can confidently apply for and be approved for an unsecured credit card.

When it comes to value and convenience, credit cards are a useful way to pay for everyday purchases—most retailers in Canada will accept them. There are also situations when a credit card may be the only way to pay: for example, when buying items online. Some services, such as car rentals, also require payment by credit card. So getting a credit card and managing payments can help in building your life in Canada.