Credit Score in Canada

Estimated reading time: 6 minutes

When moving to Canada we didn’t know anything about credit score and credit history. It wasn’t something that was a part of the U.A.E. life. You didn’t need to have a credit score to receive loans and credit cards in U.A.E. Honestly speaking, the first time I got a credit card was for the immigration process and making online payments. All of our transactions were in cash. And now, we don’t use cash as much. It’s all plastic money being moved around.

I was advised about credit score by my banking advisor at Royal Bank of Canada upon arriving in Canada. Credit score in Canada apparently was a necessity rather than a mere requirement. Let’s delve in to what credit score is and how does it work.

Credit Score in Canada:

The credit score is plainly a ranking out of 850 for all individuals with a SIN number in Canada. Credit score in Canada is based off of an individual’s credit history. It depends on your debt to capital ratio. Depends on if you are able to pay off your debts in a timely fashion. Make sure that your payments are done on time. Ensure that you don’t default on your financial commitments. That is how you improve and keep your credit score high.

How did it all start?

Credit in Canada starts with you applying merely for a credit card. The balance limit on that card is your allowance to spend on the banks’ expense (Credit approved by bank, not your money!!). If you default on your payments, you pay interest and your credit score gets a hit. This hit reduces your credit score/rating.

When I went to the bank to get control of my bank account at RBC, the interesting conversation I had with the advisor is as follows:

Advisor: Do you have a credit card.

Fahad: No, do I need to have a credit card in Canada?

Advisor: No you don’t but you should get one. How are you going to build your credit score?

Fahad: What is a credit score?

Advisor: You never had a credit history checked, or credit card or loans before?

Fahad: Nopes, never needed one!

Advisor: Well, you will need one in Canada. Everything here is linked with your SIN Number and you require an excellent credit score for multiple things!!!

Fahad: Ok, sure. If you say so!!

That’s it, as a New Immigrant in Canada, I was pre-qualified to receive a CAD 2000 credit card. I didn’t need a credit score for getting my first credit card. But that credit card would help me build on my credit history and that would help me in many ways.

Where do you need credit score?

Credit score is required essentially by all of the following individuals or organizations:

• Financial Institutions
• Automobile companies
• Retailers
• Mobility companies
• Insurance companies
• Government Institutions
• Employers
• Landlords

What do these organizations use this information for?

• Lending you more money
• Car loans and leases
• Provide you with mobility postpaid packages or cellphones
• Automobile and House insurance approvals
• Credit card approvals
• Mortgage approvals
• Rental house leasing etc.

Your credit report gets checked before any organizations approves your credit, house, car, etc. Technically, not having a credit history or report means that you might not receive certain services. Credit score in Canada serves as the benchmark to your financial well-being and being a perfect resident/citizen (Just kidding).

Tips for improving credit history:

Now that you know why you need a credit score, history or report for yourself. Let’s jump in to a few tips and tricks to improve your credit score and move in to the good graces of all the institutions involved.

Here they are:

• Use credit and pay it back, getting a credit card and keeping it in your wallet without using it doesn’t help build your credit. Paying off your balance as it gets owed e.g. 15-Feb-2021 you owe $321.51 on your credit card, you pay it off completely so as not to have that amount reported by your bank to the credit unions (Transunion or Equifax).
• Consider taking out a car loan even if you have cash to buy out a car outright? You have 0% to 6.99% car financing options available that you can utilize. Having a loan and paying it off on time ensure improving your credit score exponentially. Check out my blog on Buying or leasing a car in Canada.
• Keep an eye out on your credit score. Keep on checking your credit report to see where you stand. Best way to do it is using credit karma on your mobile phone. It is free and doesn’t effect your credit score.
• Pay off your debts on time. Ensure that you pay off any outstanding balances on your mobile phone plans etc. on time. Don’t wait until the last date to pay it off.
• Financial well-being. Manage your finances properly. Ensure that you keep an eye on how much you earn and how much to spend to stay below indebtedness.

An Excellent Credit Score:

Credit score is rated between 300 and 850 by both the credit unions which is Transunion and Equifax. Following are the credit score ranges and how they stand on the greatness scale:

• Excellent – 800 and above
• Very Good – 740 to 799
• Good – 670 – 739
• Fair – 580 – 669
• Poor – 579 and under

A good resource to understand your credit scores and viability of these against your borrowing ability can be found on these links here: Equifax or TransUnion.

Life in Canada:

For your own well-being and that of your family, ensure that you have a good grasp of your financials. Having a balance between spending and earning makes for a huge difference in where you credit score will stand. Make sure that you take care of all of your financial needs according to your ability to fulfill them. My dad used to quote the following on a regular basis while growing up:

“If you have a Dirham in your pocket, BUY. If you don’t, abstain! Cut your coat according to your cloth.” – Muhammad Rafique

I would like to hear about your opinions and your comments. Do share this with your friends and family members who are planning on migrating to Canada so that they choose better. Good luck with your journey forward.

LIKE – SUBSCRIBE – SHARE – COMMENT