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Ada Tony-Ilebor, Branch Manager with TD explains more about creating a good credit rating in Canada

How do I build my credit history in Canada?

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  • Reading time:6 mins read

Credit – including your credit history and credit score both play an extremely important role in establishing and maintaining a healthy credit rating in Canada.

From setting up your first phone or internet account, to renting a place to live and when you’re financially ready, buying a home, you’ll realize the importance of credit as a newcomer to Canada very early on.

Credit – simply means to borrow money. It allows you an opportunity to buy now and pay later. With credit, you are able to buy items that you may not be able to afford in full right now, allowing you to pay over time. Furniture, appliances, cars and homes are all examples of purchases that are often made on credit. Of course, when you borrow money, you have to repay it, and lenders will set repayment schedules and likely ask for interest as compensation for lending you the money.

Different types of companies offer credit in Canada. Examples include banks, furniture stores, retail outlets, telecommunications companies and car dealerships. 

Credit can be a valuable financial tool, it can make life more comfortable and long-term goals more attainable. 

Your Credit History is made up of information put together from financial institutions, retailers, and other lenders on how an individual has managed, used and handled borrowed funds in the past. In Canada, a good credit score is important. Your credit score is an assessment of your ability to fulfill the financial commitment of borrowing credit at a particular time, based on your financial history as reported to the credit bureaus. It is important to remember that your credit score is dynamic. This means that it will change as your financial circumstances change.

In Canada, Equifax and Transunion are the two main credit bureaus. They are private companies that keep track of how you use your credit. They assess public records and information from lenders like banks, collection agencies and credit card issuers to determine your credit score.

So, as a new Canadian looking to start a healthy financial life, a good question to ask is how can you build credit history and get a good credit score? Below are a few helpful tips around credit that may be useful:

  1. Take credit. Start with a credit card, use it for things you will normally buy with cash and regularly pay it off.
  2. Pay your bills on time. As much as possible, try to avoid late payments on all your credit products, such as credit cards and phone and utility bills.
  3. Think about affordability before taking credit or making any purchase. Use a budget to determine how much free cash you have after all expenses so not to take too much credit which could lead to a default.
  4. Avoid making only the minimum payments on your credit cards for too long. Remember that minimum payments cover your interest costs plus a small amount towards your principal balance, so be sure you are able to pay more than the minimum payment each month. If you can pay off the balance in full each month, you are able to avoid interest charges for purchases altogether!

Importance of credit history from your country of origin

As a newcomer to Canada, there may be situations that will require a lender to ask for your credit history from your country of origin.  The lender will request this information to see how you have borrowed and used credit before you came to Canada. Lenders may ask for this when you do not have enough credit history in Canada and may request that you provide documents like statements of account, credit card statements and/or copies of credit bureau reports from your country of origin.

Keeping track of these types of things, to the best of your ability of course, can be crucial to helping you start a new life in Canada, and begin building good credit right from the start. And, if you have questions while navigating your new financial life, speaking to someone at a financial institution is always a good idea.

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