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Building your credit score in Canada and why it is important

Written by Rand Rubaye

Sponsored by CIBC

Personal finance is one of the most important topics you’ll want to understand as a newcomer to Canada. Adapting to a new currency, understanding sales taxes, and getting to know names of different type of transactions (i.e. “Do you want to pay debit or credit?”) can feel overwhelming. Thankfully, you’re not on your own. We’ve teamed up with CIBC to put together guides like this one to help you learn about banking and finances in your new home.

If you didn’t know already, building your credit history is crucial for your future financial success. Your journey to establishing your credit score and building a credit history starts with applying for your first credit card, ideally it should be as soon as you land in Canada.

Below are some tips and guides to help you better understand how the Canadian credit system works.

What is a credit score?

Whenever you borrow money from a bank, a credit bureau receives specific information about you. Additional details, including whether you’ve made on-time payments, if you’ve missed payments, and the total amount of debt you have outstanding, will be shared with the credit bureau over time. These elements are then used to calculate your credit score, which is a three-digit figure on your credit rating report that shows lenders how likely you are to repay a loan.

Generally speaking, credit scores tend to fall under these categories:

Lowest credit score: 300

Good credit score: 660-750

Highest credit score: 900

If you haven’t opened a credit card or line of credit in Canada yet, or if you’re looking for a credit card that is more rewarding, the CIBC Dividend Platinum® Visa* Card is a simple way for you to build your credit and earn cash back on your everyday spending, in-person and online.. And if you ever have questions or need guidance, simply book a meeting with a helpful advisor at your nearest CIBC Banking Centre. They can give you expert advice on accounts, loans, and they could even get the highest limit on your credit card✦ (potentially up to $10,000) to help you start establishing your credit in Canada.

Why do you need to have a good credit score in Canada?

In Canada, major purchases often involve getting a loan from a bank. The “lenders” want to know how you have previously handled credit in order to predict how likely you are to pay it back in the future. Whether you’re looking to rent a home, buy a home, purchase a car, open a business and even in some cases, to get a job, your credit score may be looked at and assessed 

Not having a credit score could mean that if you find yourself in a competitive situation to buy or rent a home, you might not be able to secure it. That’s why it’s important to start establishing and building your credit score and history as soon as possible when you arrive in Canada.

How do I achieve a good credit score?

Your score is calculated based on a number of factors, but here are some tips to help you build towards good credit.

1. Pay On Time
Always ensure that you are paying off your balance on time. Each lender tells you how much you have to pay back, and a due date for your payment. If you cannot pay the full amount, make sure to at least pay the minimum amount provided to you by your bank. And never miss a payment even if the bill is in dispute. 

2. Stay within your credit limit

Avoid exceeding your credit limit. For instance, if you have a $5,000 limit on your credit card, do not go over this amount. Your credit score will suffer if you use a credit card beyond its allowed borrowing limit. Try to use no more than 30% of your credit line. Having a bigger credit limit and using less of it each month is preferable. If you visit your nearest CIBC branch with your immigration documents, they can tell you what credit limit you may be eligible to apply for (potentially up to $10,000).✦

3. Monitor your transactions

Monitoring your credit should become a weekly habit to you once you are a credit user. Banking apps are your best friend as they provide you easy access to all of your transactions, balances, and minimum payments you need to make on a monthly basis. This helps you plan your spending and when you need to make payments off. You can manage all your transactions AND get insights on your spending with ease using  CIBC’s Online Banking and CIBC Mobile App.

4. Increase the length of your credit history 

Your credit score benefits from having a credit account open and in use for a longer period of time. If you have credit accounts that are relatively new, your credit score can be lower. The new account is regarded as new credit if you move an older account to it.

For instance, certain credit card offers include introductory interest rates that are low for balance transfers. This implies that you can apply your existing balance to the new purchase. The new item is regarded as fresh credit. Even if you don’t need an old account, think about keeping it open. To keep it active, use it sometimes. If the account is open but you don’t use it, make sure there isn’t a fee for keeping it open.

5. Use different types of credit 

Your credit score is impacted by the quantity of credit products you have, including loans, credit cards, lines of credit, and other loans. It is a good idea for newcomers to Canada to begin with a single credit card and gradually apply for various credit products down the road. Diversifying your credit and having a variety of credit products may boost your credit score as you establish yourself in Canada. To avoid damaging your credit score by taking on too much debt, you should, however, be sure you can repay any money you borrow.

Have more banking questions? 

If you need help getting yourself and your family established financially in Canada, simply book a meeting with a helpful advisor at your nearest CIBC Banking Centre. They can give you expert advice on building your credit history with a credit card as well as accounts, loans, and much more.

Brought to you by CIBC. General information not about CIBC Financial products is provided for your reference and interest only. The above content is intended only to provide a summary and general overview on matters of interest and is not a substitute for, and should not be construed as the advice of an experienced professional. CIBC does not guarantee the currency, accuracy, applicability or completeness of this content.

Higher Limit on Credit Card Offer (HLCC): Higher Limit on Credit Card program is only available in CIBC Banking Centres. You must present your immigration documents (IMM5292/IMM5688) to confirm eligibility. Only available if you’re new to CIBC and don’t have any CIBC products, or if you’re an existing CIBC client who does not have a CIBC credit card. Offer available only on the first approved CIBC credit card. This is an unsecured credit card offer. Final limit assigned is at discretion of CIBC.

CIBC logo is a trademark of CIBC.

CIBC Dividend Platinum® is a registered trademark of CIBC.
Visa* is a trademark of Visa International Service Association and used under license.

*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.