Having a good credit score in Canada is essential for living there. A good credit score makes sure that you qualify for better interest rates on loans and mortgages down the line. So, if you want to build your credit score, it is essential to have & use a credit card. 

In this blog, we will outline what a credit score is & share insights on how you can build a good credit score in Canada.       

So, without further ado, let us begin! 

 

What Is A Credit Score? 

When you borrow money from a financial institution, they share that information with a credit bureau. Over time, the credit bureau also checks additional information/ data, like paying bills on time, missing payments, debts, etc. All these factors go into calculating your credit score, a three-digit number indicating your capacity to repay the loan. 

Interestingly, credit scores range from 300-900, indicating the following: 

  • 300 – The beginning point of building a credit score. 
  • 750 – The middle number means that you qualify for a standard loan.
  • 900 – The highest score offered/awarded for excellent credit history. 

 

It is vital to note that the higher you score, the lower the risk is to the bank & vice versa. A score below 750 will likely make it challenging for you to acquire a loan/ credit card. You might even receive a lower credit limit & get charged higher interest rates.  

For newcomers immigrating to Canada, banks provide a credit card when you open a newcomer/ immigrant account. This generally suffices to help you start on your journey of building a good credit score in Canada.  

 

Who Can Use Your Credit Report? 

Credit bureaus follow specific rules & regulations that define who can see and use your credit report. Banks, credit unions, financial institutions, car leasing companies, government, employers, landlords, insurance companies, etc., can look at and utilize your credit report so that they can make lending decisions about you. 

Generally, you don’t need to give your consent to these businesses & institutions to look at your credit report. For instance, in Nova Scotia, Saskatchewan, & PEI, these institutions inform newcomers that they are checking their credit reports. However, other provinces need the written consent of the newcomers to check the credit report. 

 

Tips To Build A Good Credit Score In Canada 

In order to reside in Canada, follow these tips, as having a good credit score is paramount. 

  • Make Payments On Time & Pay Off Your Balance 

When lenders review your credit report & request to see your credit score, they wish to know how reliable you are with paying your bills. Well, that’s because past payment performance is considered a good predictor of future performance. 

So, to build a good credit history, it’s vital to make all your payments on time. While your credit card bill indicates the minimum amount owed, it is best to start building a good credit score in Canada by paying off the balance in each billing cycle. In addition, paying the balance every month also enables you to avoid racking up credit card debt. 

  • Use Credit Wisely 

Always stay within your credit limit. For example, if you have a credit card with a CAD 2,000 limit, then do not try to go over it. You must spend only what you can afford to pay back. 

Sending more than the authorized amount on a credit card will definitely afford your credit score. 

In addition, make it a thumb rule to use less than 35 percent of your total credit. For instance, if you have a credit card with a CAD2,000 limit & a CAD 5,000 line of credit from the bank, then you must limit your total spending to approximately CAD 2,450 or less, thus maintaining the 35% rule for your credit card. 

If you reach the maximum credit limit each month, lenders perceive you to be at a greater risk. 

  • Report Inaccuracies On Your Credit Report 

Once you obtain your report, check for the following: 

  • Error in credit card & loan accounts, such as the payment you made on time is shown as late.
  • Mistakes in your data, like wrong date of birth, incorrect mailing address, etc. 
  • Accounts listed that you never opened (it is a sign of identity theft.)  
  • Negative data about your accounts that is still listed after the maximum number of years is allowed to stay on your report  

Any inconsistencies/ fraud incidents must be readily reported to credit bureaus to get them corrected. Thus, monitoring your credit regularly can help you spot out inaccuracies before they impact your credit rating. 

  • Use Different Kinds Of Credit

The number of credit products you use/ have affects your credit score. For newcomers in Canada, it is suggested to begin with a single credit card & further apply for other credit products. 

As you become more and more established in Canada, diversifying your credit & having different credit products will definitely improve your credit score. However, make sure that you are able to pay back the money you borrow. Otherwise, you could end up reducing/ hindering your score by taking on too much debt. 

 

Conclusion

Credit is vital to residing in Canada. Thus, building a good credit score in Canada takes time, so be patient! Also, being aware of the factors that affect your credit score can enable you to make better financial/ monetary decisions. 

Utilize the tips mentioned above and create a good credit score for yourself. After all, a good credit score will offer you numerous benefits in the long run!