Looking to buy a home and need a mortgage? You won't get one, not unless you have a good credit score or rating. Need a loan to purchase a car? Ditto on the credit rating.
Think you can build a good credit rating by using cash for all your purchases, and making payments as soon as you receive an invoice? Think again.
The only way you can build a credit rating, is by using a credit card. And having used a credit card outside of North America counts for zilch, you need to have a Canadian or US card. You could perhaps argue that if you already have a credit card with, say, Visa or MasterCard, the banks here would be able to tap into those records. But it doesn't work that way, they only use the credit data associated with North American-issued cards.
What exactly is Credit Rating?
Your credit rating is a measure of your credit-worthiness: your reputation for paying back money. The credit bureau provides your credit history, which is a list of facts about how you handle debt. This information is gathered from financial institutions, retailers, phone and cable companies and other lenders.
Most of your credit information remains on your file for seven years. The ranking each creditor gives you is called your "credit rating".
Building a favourable credit rating takes time, from a few months to several years.
Credit ratings and records are maintained by central bureaus and the ratings are on a sliding scale from 1 to 9, with 1 being the best and 9 the worst.
As a newcomer, your credit rating or credit experience would be 0. So as you can see, that's even worse than having the worst possible credit rating
That is why you should get yourself a credit card as soon as possible after you arrive here.
Now, because you may not be able to secure a job right away you cannot show details of employment history when you apply for a credit card. Some banks may even refuse you a credit card on these grounds.
By this time you will probably have opened a bank account, so start your search for a credit card with the bank where you have your account. You might be surprised to find that the bank might turn down your application for a credit card even though you may have a few thousand dollars sitting in your account.
Shop around at other banks. There is tremendous competition and you could find another banker willing to issue you a credit card. But very often, for a newcomer, the only alternative is to put in a deposit against a credit card. In other words, you deposit an amount of $1,000 and you are issued a credit card with a spending limit of up to that amount. Look for a card with no annual fee.
It may be frustrating that you have to deposit some money to get a credit card but do it all the same. It is the only way to beat the system. As far as the banks are concerned, you are a newcomer and a risk factor and until you prove otherwise by establishing a good credit rating they are not going to lend you money.
Once you have the card, start making an occasional purchase here or there, even if it is for small amounts. At the end of the month, when you receive your bill, make sure that you pay off the amount by the due date.
Over the course of the months, these records will show in the central register that you are using a credit card and that you are prompt with your payments, thus building up a favourable credit rating.
How do you build a good credit rating?
But don't be under the impression that the more credit cards you have the better your credit rating. In fact, the more you have and the more times you apply for a new credit card, you show up as a bigger risk on the central credit rating register.
It is good practice to request copies of your credit report periodically. This will help you monitor your credit rating as well as ensure that your credit report is accurate. To obtain a copy of your credit report, you can contact Canada's credit bureaus:
The impications of bad credit: Simply put, if you don't use your credit wisely, you'll end up with a poor credit rating.
With poor credit you'll probably have trouble getting new loans and credit cards. This may be frustrating when you finally find the car or house of your dreams. You may also have trouble obtaining a lease for an apartment or even a cellular phone.
Employers may want to check your credit history before offering you a job. Remember that every incident of bad credit stays with you for up to seven years so what you do today will have an impact on your life later on.
You may not need credit now, but if you don't think ahead, you won't have the option of credit when you need it.
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We're volunteers dedicated to provide information in helping new immigrants navigate the cultural and language differences for the Province of Québec.
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