Understanding Canadian Credit Scores: A Guide for Newcomers

Why Credit Scores Matter in Canada

When you arrive in Canada as a newcomer, you start with no credit history. This can be surprising and frustrating, especially if you had an excellent credit record in your home country. Canadian lenders, landlords, and even some employers check your credit score before making decisions.

Your credit score is a three-digit number between 300 and 900 that tells lenders how likely you are to repay borrowed money. A higher score means you are seen as a lower risk. Most Canadians aim for a score of 650 or higher, and a score above 750 is considered excellent.

At WelcomeAide, we believe that understanding financial systems is a key part of settling in Canada. This guide will help you understand how credit works and how to start building your score from day one.

How Canadian Credit Scores Work

In Canada, two main credit bureaus track your credit history: Equifax Canada and TransUnion Canada. These bureaus collect information from banks, credit card companies, and other lenders about how you use credit and whether you make payments on time.

Your credit score is calculated based on five main factors:

• Payment history (35%): Whether you pay your bills on time. This is the most important factor.
• Credit utilization (30%): How much of your available credit you are using. Keeping this below 30% is recommended.
• Length of credit history (15%): How long you have had credit accounts. Longer history is better.
• Types of credit (10%): Having a mix of credit types (credit card, car loan, line of credit) can help.
• New credit inquiries (10%): How often you apply for new credit. Too many applications in a short time can lower your score.

Checking Your Credit Score

You are entitled to one free credit report per year from each bureau. You can request your Equifax report online or by mail. TransUnion also offers free access to your report. Some Canadian banks and financial apps, like Borrowell and Credit Karma, offer free credit score monitoring.

Checking your own credit score is considered a "soft inquiry" and does not affect your score. Only "hard inquiries" from lenders when you apply for credit can lower your score slightly.

Starting from Zero: Building Credit as a Newcomer

As a newcomer, your credit file in Canada is empty. Credit scores from other countries do not transfer to Canada. This means you need to build your Canadian credit history from scratch. The good news is that several products and strategies are designed specifically for newcomers.

Secured Credit Cards

A secured credit card is the easiest way to start building credit in Canada. With a secured card, you provide a cash deposit (usually $300 to $500) that becomes your credit limit. You use the card for small purchases and pay the balance in full each month.

Most major Canadian banks offer secured credit cards for newcomers. Some popular options include:

• Home Trust Secured Visa: No annual fee, requires a minimum $500 deposit.
• Capital One Guaranteed Secured Mastercard: Requires a $75 refundable security deposit, with a credit limit of $200 to start.
• Canadian Tire Secured Mastercard: Requires a $50 to $300 deposit.

After 12 to 18 months of responsible use, many banks will upgrade you to an unsecured card and return your deposit.

Newcomer Banking Programs

Several major banks have special programs for newcomers to Canada. These programs often include a no-fee bank account, a credit card with no Canadian credit history required, and sometimes a small line of credit.

• RBC Newcomer Program: Offers a no-fee bank account for the first year, a credit card, and a welcome bonus.
• TD New to Canada Banking Package: Includes a credit card, no monthly fees for six months, and access to a financial advisor.
• BMO NewStart Program: Credit card with no Canadian credit history needed, plus mortgage options.
• Scotiabank StartRight Program: No-fee bank account, credit card, and international money transfers.
• CIBC Welcome to Canada offer: Credit card, no monthly banking fees, and newcomer resources.

These programs are available to permanent residents, temporary residents, and in some cases, international students. You typically need to apply within three years of arriving in Canada.

Credit Builder Loans

Some financial institutions and credit unions offer credit builder loans. With these products, you borrow a small amount (usually $500 to $3,000), and the money is held in a locked savings account. You make monthly payments over 12 to 24 months, and each payment is reported to the credit bureaus. Once you have paid off the loan, you receive the funds.

Credit builder loans help you establish a payment history without the risk of overspending. Refresh Financial is one Canadian company that offers this type of product.

Strategies for Building Good Credit

Building credit takes time and consistency. Here are proven strategies that will help you build a strong credit score in Canada.

Pay Every Bill on Time

Payment history is the single biggest factor in your credit score. Set up automatic payments or calendar reminders for all your bills, including credit cards, phone plans, and any loans. Even one missed payment can significantly lower your score.

Keep Credit Utilization Low

Try to use no more than 30% of your credit limit at any time. If your credit limit is $1,000, keep your balance below $300. Even better, aim for under 10% for optimal score improvement. Pay your balance before the statement date if needed.

Keep Old Accounts Open

The length of your credit history matters. Even if you get a new credit card, keep your first card open and use it occasionally. Closing old accounts shortens your credit history and can lower your score.

Avoid Applying for Too Much Credit at Once

Each credit application results in a hard inquiry on your report. Multiple hard inquiries in a short period can lower your score. Space out your credit applications by at least three to six months.

Get a Phone Plan in Your Name

Many Canadian phone providers report payment activity to the credit bureaus. Getting a postpaid phone plan and paying it on time each month is another way to build credit history.

How Long Does It Take to Build Credit?

Building a credit score from zero takes time. Here is a general timeline of what to expect:

• Month 1 to 3: Open a secured credit card and start using it for small purchases. Pay the full balance each month.
• Month 3 to 6: Your credit file starts to develop. You may see your first credit score, likely in the 600 to 650 range.
• Month 6 to 12: With consistent on-time payments and low utilization, your score should climb to 650 to 700.
• Month 12 to 24: You may qualify for unsecured credit cards, a small line of credit, or a car loan. Your score could reach 700 to 750.
• Year 2 to 3: With a strong payment history and a mix of credit types, you can build a score above 750.

Most newcomers who follow good credit practices can qualify for a mortgage within two to three years of arriving in Canada.

Common Credit Mistakes Newcomers Make

Avoiding mistakes is just as important as building good habits. Here are common errors that newcomers often make with credit in Canada.

• Carrying a balance and paying only the minimum: This increases your credit utilization and costs you money in interest. Credit card interest rates in Canada are typically 19.99% to 22.99% per year.
• Maxing out credit cards: Using all your available credit signals financial stress to lenders and drops your score.
• Not checking your credit report: Errors on your report can lower your score. Check your report at least once a year and dispute any inaccuracies.
• Applying for store credit cards you do not need: Each application is a hard inquiry, and store cards often have high interest rates.
• Cosigning for someone without understanding the risk: If the other person misses payments, it affects your credit too.
• Ignoring bills in collections: Unpaid debts sent to collections stay on your credit report for six to seven years in most provinces.

Credit Scores and Renting an Apartment

Many landlords in Canada check your credit score as part of the rental application process. If you are a newcomer with no credit history, this can be a challenge. Here are some tips:

• Offer to provide a larger security deposit (where legally permitted).
• Provide references from your employer or previous landlord.
• Show proof of income, such as an employment letter or bank statements.
• Explain that you are new to Canada and are actively building credit.

For more information on renting in BC, check out our guide on rental housing on our blog.

Protecting Yourself from Credit Fraud

Credit fraud is a real concern in Canada. As a newcomer, you should take steps to protect your identity and credit information.

• Never share your Social Insurance Number (SIN) unless absolutely required (for employment, banking, or government purposes).
• Shred documents containing personal information before discarding them.
• Use strong, unique passwords for online banking and financial accounts.
• Monitor your credit report regularly for accounts you did not open.
• Report suspected fraud immediately to Equifax (1-800-465-7166) and TransUnion (1-800-663-9980).

You can also place a fraud alert on your credit file by contacting either bureau. The Canadian Anti-Fraud Centre is a resource for reporting and learning about fraud in Canada.

Resources for Financial Literacy

The Financial Consumer Agency of Canada (FCAC) offers free resources on credit, budgeting, and financial planning. Their website includes tools and calculators specifically designed to help Canadians understand their finances.

Many settlement agencies also offer free financial literacy workshops for newcomers. Check with your local settlement organization or visit WelcomeAide's programs page to learn about available resources.

How WelcomeAide Can Help

Understanding credit is just one part of settling in Canada. At WelcomeAide, we provide free, multilingual settlement information to help newcomers navigate life in Canada.

Use our AI chat assistant to ask questions about credit, banking, housing, and other settlement topics in your preferred language. Visit our about page to learn more about our mission, or explore our impact on newcomer communities across Canada.

Building credit in Canada takes patience and discipline, but it is absolutely achievable. Start early, stay consistent, and your credit score will grow alongside your new life in Canada.