Credit and New Canadians: Settling the Score
Understanding your credit report and navigating the waters of personal finance can be a challenge – not just for recent arrivals but for long-time Canadians as well. In fact, a new study conducted for the government’s Financial Consumer Agency of Canada (FCAC) shows that half of Canadians don’t understand the factors that affect their credit reports. FCAC is a government organization that provides free information and advice about financial products and services.
Your credit report tells the story of your credit history – any time you have borrowed money, how and when you paid it back, where you borrowed it, and how much you owe. Depending on how well you repay the money, you will have a good, fair or poor credit rating. Your credit rating can influence your lifestyle and the things you can afford. For newcomers, it can be difficult to adapt to a new country and build up a credit history at the same time. However, a good credit history and credit rating are extremely important for you to succeed and prosper in Canada.
Building a credit history is a huge problem says Olivera Tosic, a Serbian immigrant who arrived in Canada nine months ago and has not been able to establish any credit history in Canada. “Newcomers already face a lot of barriers,” says Tosic, and building credit is one of the toughest. She says more should be done to recognize immigrants’ credit histories from their home countries and make it easier for them to adapt to their new lives here. Especially when many new arrivals already had money in the bank before their arrival in Canada, she adds.
Banks and other lenders look at your credit history as they decide whether to issue financial products like credit cards, personal loans, or mortgages. If you are approved for a loan or a mortgage, but you don’t have a credit history in Canada or you have a low credit score, you may be charged a higher interest rate. This may mean that your loan or mortgage will cost you more money. Not having a credit history, or having a poor credit rating can also make it difficult to rent an apartment or buy a cell phone.
If you have ever borrowed money by using a credit card, taken out a personal loan, or used a ‘buy now, pay later’offer, you have a credit history.
Businesses that give you credit will keep track of how long it takes you to pay back the money that you have borrowed, and whether you make your payments on time. This information can be sent to a creditreporting agency, and it is called your credit history.
There are three major credit-reporting agencies in Canada: Equifax, TransUnion and Northern Credit Bureaus. These agencies keep your credit history on file.
This file is known as your credit report. It paints a picture of your credit history in Canada. It is one of the main tools lenders use when they decide whether or not to give you credit.
Credit-reporting agencies and other lenders develop a credit score that is based on your credit history. This score tells them whether or not you may be able to pay off the loan. It paints your financial picture at a specific point in time.
Creditors, who give credit, and lenders, who lend money, look at your credit score to decide whether or not you will get credit and how much interest you will pay. Your credit score is created using a mathematical formula based on information from your credit report.
Here are factors that can affect your credit score:
- If you pay all of your credit card debts each month;
- If you have ever missed a payment on money you owe;
- How long you have had credit;
- How many people have asked about your credit, recently;
- If you have any other debts;
- If you had any bills that you could not pay and were sent to a collection agency; or
- If you have ever been bankrupt.
Your Credit Questions Answered
I don’t have any credit history. How will this affect me?
If you are just starting to establish your credit history in Canada, there will not be a lot of information about your credit habits. But be careful not to apply for credit too often over a short period of time, since this can have a negative effect on your credit score. The safest way to improve your credit is to only apply for credit when you need it.
How can I build a credit history?
If you don’t have a credit history, you are new to Canada, or you have had past credit problems, you can establish or re-build your credit history with a secured credit card. You will have to make a cash deposit to get the card. Once you start to make regular payments on the card, you can begin to build or improve your credit history.
Will Canada recognize my credit history from another country?
Canadian credit-rating agencies only collect information about your financial history in Canada. However, some banks may be willing to recognize your credit history from your home country if you ask. They may ask for a copy of your credit report from a credit-reporting agency in your home country. They might want to discuss application for credit or a loan with you.
I want to see my credit report. How can I find this information? Is there a cost?
Since all of Canada’s major credit-reporting agencies may have collected your credit information, you should get a copy of all three to make sure it contains correct information and that you have not been the victim of identity fraud. If you order a copy of your own report, it will not have any affect on your credit score. You can order your credit report in writing, on line, by phone, or by fax. If you want a copy by mail, there is no charge. If you request an electronic copy, there will be a fee. Once you receive the report, make sure to look at all the factors that affect your credit score. If you follow the report’s recommendations, you may be able to improve your score.
For more information on how to order your credit report, visit FCAC’s website moneytools.ca. Here, you will find a number of tools to help you build and maintain a good credit history and understand how credit works. The website also features many other tools and tips with information about important financial issues and products.
You can view FCAC’fs booklet Understanding Your Credit Report and Credit Score on the website. You can order a free copy of this booklet and other useful information by calling the Agency free of charge at 1-866-461-3222. The booklet has detailed and accurate information about the importance of credit and a good credit history. This will help you as you adapt to your new life in Canada.