Moving to a new country can be challenging, but building your credit score is one of the most important steps you can take to secure your financial future. Lenders use your credit score to determine if you are a reliable borrower. This score, a number between 300 to 900, represents your creditworthiness. The average Canadian has a credit score of around 650. According to Equifax, “credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent. ” A good credit score can help you get approval for loans, credit cards, and rental applications. The higher the score, the better it is for you to obtain other things such as mortgages and car loans.
An individual's credit files are used to determine their credit score. Naturally, newcomers to Canada will not have enough credit history to determine a credit score. In other words, newcomers need to build up their credit scores. Continue reading for some tips on how to do this!
Get a credit card
Using a credit card is one of the easiest ways to build credit. As a newcomer in Canada, your lack of credit history can make getting approved for a credit card difficult. However, options such as secured credit cards can benefit newcomers. With a secured credit card, you provide a security deposit upfront, which becomes your credit limit. By using your card responsibly and making payments on time, you can build your credit history and eventually qualify for a traditional credit card. In addition, many banks offer credit card programs specifically for newcomers. Research the program that best works for you!
Make timely payments
Payment history is one of the most important factors in determining your credit score. Make sure to pay all your bills, including credit card payments, on time each month. Even one missed payment can harm your credit score.
Keep your credit utilization low
Credit utilization refers to the amount of credit you use compared to your credit limit. One general rule is to keep your credit utilization below 30% to maintain a good credit score. For example, if your credit limit is $1,000, you should aim to keep your balance below $300.
Apply for credit sparingly
It may be tempting to apply for multiple credit cards. However, a hard inquiry is generated on your credit report every time you apply for credit. Lenders or companies will submit a request to review your credit report as part of the application process. Requesting this review will often impact your credit score. Therefore, newcomers should only apply for credit when necessary and research beforehand to find the best options that meet your needs.
Monitor your credit report
Once a year, you're entitled to a free credit report from the two major Canadian credit bureaus, Equifax and TransUnion. It is good practice to check your credit report regularly and to look for errors or fraudulent activity. Report any mistakes or suspicious activity to the credit bureau immediately to have them corrected.
Building a good credit score takes time and patience. Establish a positive credit history by using credit responsibly over time. At the same time, don't get discouraged if your credit score doesn't improve immediately.
Building a good credit score as a newcomer to Canada may seem challenging at first. However, with patience and responsible usage, you can establish a positive credit history and secure your financial future. Remember to use credit wisely, always pay on time, and monitor your credit report regularly to ensure accuracy.
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