How to Build Credit History as a Newcomer to Canada

When you arrive in Canada as a newcomer, you start with no Canadian credit history, regardless of how excellent your credit was in your home country. Canadian lenders, landlords, insurance companies, and even some employers use your Canadian credit history to assess your financial reliability. Without a credit history, you may find it difficult to rent an apartment, get a phone plan, qualify for a car loan, or obtain a mortgage. Building credit is therefore one of the most important financial steps for newcomers to take as soon as they arrive.

The good news is that building credit in Canada is straightforward if you understand how the system works and take the right steps from the beginning. This guide explains the Canadian credit system and walks you through the most effective strategies for building your credit history from scratch.

Understanding Credit in Canada

In Canada, your credit history is tracked by two national credit bureaus: Equifax Canada and TransUnion Canada. These bureaus collect information from lenders, credit card companies, phone providers, and other creditors about your borrowing and payment behaviour. This information is compiled into a credit report, which is used to calculate your credit score.

Your credit score in Canada ranges from 300 to 900, with higher scores indicating lower risk to lenders. A score of 660 or above is generally considered "good," while a score of 725 or above is considered "very good" or "excellent." Most newcomers start with no score at all, and the goal is to build toward at least a 660 as quickly as possible.

What Affects Your Credit Score

Several factors influence your credit score, and understanding them is key to building good credit. The most important factors are payment history (whether you pay your bills on time), which accounts for approximately 35% of your score. Credit utilization (how much of your available credit you are using) accounts for about 30%. The length of your credit history makes up about 15%, and the types of credit you have (a mix of credit cards, loans, and other products) and recent credit inquiries (how many times you have applied for credit recently) each account for about 10%.

For newcomers, the most actionable factors are payment history and credit utilization. Always pay at least the minimum amount on time, and try to keep your credit card balance below 30% of your credit limit. For detailed information about credit scores, visit the FCAC credit score page.

Strategy 1: Get a Secured Credit Card

A secured credit card is the single most effective tool for newcomers to start building credit in Canada. Unlike a regular credit card, a secured card requires you to provide a cash deposit (usually $200 to $2,500) that serves as your credit limit. This deposit reduces the risk for the card issuer, making it possible for people with no credit history to get approved.

When you use a secured credit card and make your payments on time, the card issuer reports your activity to the credit bureaus just like a regular credit card. Over time, this builds your credit history and improves your credit score. Most major Canadian banks and several specialized issuers offer secured credit cards for newcomers.

How to Use a Secured Credit Card Effectively

To maximize the credit-building benefits of a secured credit card, follow these best practices. Use the card for small, regular purchases such as groceries or gas. Pay the full balance every month to avoid interest charges (secured cards often have high interest rates of 19% to 22%). Keep your balance below 30% of your credit limit at all times. Set up automatic payments or calendar reminders to ensure you never miss a payment. After 6 to 12 months of responsible use, apply for a regular (unsecured) credit card and consider upgrading.

Many banks that offer newcomer banking packages also include a secured or unsecured credit card as part of the package. For more about newcomer banking, see our guide to Canadian banking fees.

Strategy 2: Become an Authorized User

If you have a family member or trusted friend in Canada who has a credit card with a good payment history, you can ask them to add you as an authorized user on their account. As an authorized user, you receive your own card linked to their account, and the account's payment history may be reported on your credit report as well, helping you build credit.

Important Considerations

Not all credit card issuers report authorized user activity to the credit bureaus, so check with the card issuer before pursuing this strategy. Also, the primary cardholder is responsible for all charges on the account, including yours, so it is important to have a clear agreement about how the card will be used. If the primary cardholder misses payments or carries a high balance, it could negatively affect your credit as well.

Strategy 3: Phone Plan Reporting

Many newcomers are surprised to learn that their mobile phone plan can help them build credit. Most major Canadian telecommunications providers, including Rogers, Bell, and Telus, report your payment history to the credit bureaus. When you sign up for a postpaid phone plan (a plan where you pay a monthly bill after using the service) and pay your bills on time, this positive payment history appears on your credit report and contributes to building your credit score.

Making the Most of Phone Plan Reporting

To ensure your phone plan helps your credit, choose a postpaid plan (prepaid plans are not reported to credit bureaus since there is no credit extended). Set up automatic payments to ensure you never miss a bill. Avoid early cancellation, as some providers may report this negatively. If you are denied a postpaid plan due to lack of credit history, some providers allow you to pay a deposit instead, similar to a secured credit card.

Be aware that signing up for a phone plan with a contract (especially one that includes a financed phone) will result in a hard inquiry on your credit report, which temporarily lowers your score by a few points. While one hard inquiry is not a major concern, multiple inquiries in a short period can be problematic.

Strategy 4: Rent Reporting Services

Rent is likely your largest monthly expense, and until recently, paying rent on time did nothing to build your credit. However, rent reporting services have emerged that allow you to have your rent payments reported to the credit bureaus, adding another positive tradeline to your credit report. Services such as FrontLobby and Chexy operate in Canada and partner with landlords and tenants to report rent payments to Equifax or TransUnion.

How Rent Reporting Works

The process is typically straightforward. You sign up with a rent reporting service and provide your rental details. The service verifies your rent payments (either through your landlord or through your bank transactions) and reports them to the credit bureaus on a monthly basis. Some services charge a small monthly fee (usually $5 to $10), while others are free for tenants and charge the landlord instead.

Rent reporting is particularly valuable for newcomers because it leverages a payment you are already making. Combined with a secured credit card and a phone plan, rent reporting gives you three different tradelines reporting to the credit bureaus, which accelerates your credit-building journey significantly.

Strategy 5: Credit Monitoring Apps

Credit monitoring apps and services allow you to track your credit score and receive alerts about changes to your credit report. For newcomers, these tools are invaluable for monitoring your credit-building progress and catching potential errors or fraud early. Several free credit monitoring services are available in Canada, including Borrowell (which uses your Equifax score), Credit Karma (which uses your TransUnion score), and Mogo.

What Credit Monitoring Apps Offer

Most free credit monitoring apps provide your credit score updated weekly or monthly, alerts when new accounts are opened in your name or when there are significant changes to your credit report, tips and educational content about credit building, and personalized product recommendations (which is how these free services make money, through referral partnerships with lenders and credit card companies).

While the product recommendations should be evaluated carefully (the apps may not always recommend the best product for your situation), the credit monitoring features are genuinely useful and free. Having visibility into your credit score helps you understand the impact of your financial behaviours and stay motivated to build good credit.

Common Mistakes to Avoid

Building credit takes patience and discipline. Here are the most common mistakes newcomers make that can slow down or damage their credit-building efforts:

• Missing payments: Even one missed payment can significantly damage your credit score. Set up automatic payments or reminders for every bill.
• Maxing out credit cards: Using more than 30% of your credit limit hurts your score. If your limit is $1,000, try to keep your balance below $300.
• Applying for too many products at once: Each credit application results in a hard inquiry, and multiple inquiries in a short period suggest financial distress to lenders.
• Closing old accounts: The length of your credit history matters. Keep your oldest credit card open, even if you do not use it often.
• Ignoring your credit report: Errors on credit reports are more common than you might think. Check your report regularly and dispute any inaccuracies.
• Co-signing loans without understanding the risk: If you co-sign a loan and the other person misses payments, your credit is affected.

A Practical Credit-Building Timeline

Here is a realistic timeline for building credit as a newcomer to Canada, assuming you follow the strategies outlined in this guide:

Month 1: Foundation

Open a Canadian bank account (take advantage of newcomer banking packages). Apply for a secured credit card. Sign up for a postpaid phone plan. Set up a rent reporting service. Download a free credit monitoring app.

Months 2 to 6: Building Habits

Use your secured credit card for small purchases every month. Pay the full balance on time every month. Pay all bills (phone, utilities, rent) on time. Monitor your credit score monthly through your credit monitoring app. You should start seeing a credit score appear within 3 to 6 months.

Months 6 to 12: Growing Credit

Your credit score should be in the 600 to 680 range if you have been making all payments on time. Consider applying for a regular (unsecured) credit card. If approved, continue the same responsible habits with both cards. Request a credit limit increase on your secured card (if applicable).

Months 12 to 24: Established Credit

Your credit score should be in the 680 to 750 range or higher. You should qualify for better credit card offers with rewards and lower interest rates. You may qualify for a car loan, a line of credit, or pre-approval for a mortgage. Continue maintaining good credit habits and monitoring your score.

For more guidance on managing your finances in Canada, explore our guide to understanding Canadian banking fees and other financial resources on our blog.

Building Your Financial Future in Canada

Building credit is just one part of establishing a strong financial foundation in Canada. Combined with smart banking choices, responsible budgeting, and an understanding of the Canadian tax system, good credit will open doors to opportunities such as homeownership, business loans, and financial security for your family. The strategies in this guide are proven, practical, and accessible to all newcomers, regardless of income level.

WelcomeAide is here to support your financial journey in Canada. Our AI Newcomer Navigator can answer your questions about credit, banking, taxes, and other financial topics in your language. Explore our blog for more newcomer guides, learn about our mission, or see how to get involved in supporting newcomer communities across Canada.