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Having a good credit history is an integral part of financial management in Canada. It can be essential for new immigrants looking to establish themselves in the country.

The immigration process does not affect credit scores, so an immigrant’s good or bad credit score from their native country will not transfer to Canada. They will need a good credit score once they arrive and building it as early as possible makes sense.

Credit is an essential part of Canada’s modern financial system, and it allows individuals, businesses, and governments to borrow money to make purchases, investments, or pay off debts.

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It allows individuals and businesses to access funds they may not have otherwise and enables them to make big purchases, invest in a new business venture, or cover unexpected expenses.

When individuals use credit responsibly and pay their bills on time, they establish a credit history. Lenders use this history to determine their creditworthiness. It helps applicants qualify for better interest rates on loans, credit cards, and other financial products, resulting in significant savings.

Credit can be a tool for improving financial security. For example, a mortgage loan can help individuals become homeowners, providing stability and security for their families. It can also stimulate economic growth by providing funds for businesses to invest in new projects, expand operations, and create jobs.

Individuals with a responsible borrowing history are more likely to be approved for loans or credit cards with favorable terms.

Your credit score, a three-digit number that ranges from 300 to 900, is a record of how responsible you are with borrowing money, whether you make your payments on time and how risky it would be to lend you money for a mortgage, credit card, car loan, or personal loan. Keeping your score on the higher end of the scale is critical.

Building credit

Discipline builds a good credit history and ensures credit reports are in positive territory.

The easiest is to open a credit account, such as a credit card or a personal loan. You must also pay your bills on time and in full each month to establish and maintain a positive history.

Establishing an early history can be beneficial when you want to qualify for an auto loan or a mortgage. This may be especially true if you’re new to Canada and are considering settling here. TransUnion has five tips on how to build your credit from scratch.

1. Start slow 

Good credit takes time and overdoing it at first by applying for many credit cards at once might damage your credit scores right from the start. It is advisable to apply for just one manageable card.

2. Get a credit card

Get a credit card and start building your credit history. Many financial institutions offer credit cards designed primarily for students and newcomers which is ideal for teaching financial responsibility.

These cards have lower credit limits and may start with lower introductory interest rates. Reward points may also be part of the deal, so you can earn as you spend.

You can also set up text or email alerts informing you of your balance or that your upcoming bill is due.

3. Secured credit card

A secured credit card is an effective way to build credit if you cannot qualify for a regular or student card. Secured cards require a deposit with the lender.

The amount of money you put down becomes the credit line for the account, so if you deposit $500, your credit limit for your card will also be $500. Bills are paid monthly, just like with an unsecured card.

If you default on your payments, the lender will use your security deposit to pay off your balance. The bank will usually release the security deposit after a period if you’ve paid your bill on time and have shown that you’re financially responsible.

With the BMO NewStart® Program, newcomers can get a no annual fee credit card with no credit history. Those who don’t qualify for the unsecured credit card will be eligible for the secured credit card, which still has all the features of the credit card.

4. Keep balances low

Maxing out your credit cards can negatively impact your credit scores. The less you charge, the better. The balance shown on your credit report — usually the balance of your last statement — affects your overall score, so maintaining a lower balance can help you build credit.

5. Pay on time

Your payment history is an essential part of your credit score. Making credit card payments on time is crucial to building credit, but don’t forget your other bills.

It’s just as essential to ensure all monthly bills, such as electric, cable, and phone, are paid within 30 days of their due dates.

Defaulted bills and those sent to collections can remain on your credit report for up to seven years.

Your credit report is established when you borrow money or apply for credit for the first time. Equifax and TransUnion produce credit scores and credit reports.

BMO has teamed up with TransUnion to give you access to CreditView®, where you can get no-fee, no-impact access to your credit score so you can start monitoring and building your credit today. BMO customers can use this tool when using the BMO banking app.

Responsible use of your credit account means you borrow responsibly and only what you can afford to repay. It is recommended to keep your credit utilization rate low and avoid carrying a balance on your credit cards.

Credit utilization is the ratio of your outstanding credit balances (on both credit cards and lines of credit) compared to your overall credit limit combined across your accounts.

For example, if you currently have a balance of $500 against your $1,000 credit limit, your credit utilization is 50%. High credit utilization can hurt your credit score, so the best practice is to keep your credit utilization below 30%.

Healthy credit means peace of mind and can increase financial stability and opportunities for individuals and businesses. Especially for newcomers, building a strong credit history is important for establishing themselves in their new home.