How to build credit history in Canada

Whether you’re new to using credit, a newcomer to the Canadian financial system, or you’re repairing a low credit score, we’ll show you actionable steps for building a credit history with Equifax and TransUnion.

What is your credit score?

Lenders need some way to determine how creditworthy a person is before issuing them a credit card or lending them funds. That’s why they use credit scores. 

A credit score is a three-digit number (from 300 to 900) that reflects how well you manage credit—for example, whether you make loan payments or pay your credit card bills on time. The higher your score, the more creditworthy you are considered to be. Your score is based on your credit report, which is stored and updated by Canada’s national credit bureaus, Equifax and TransUnion.

Equifax and TransUnion look at the same factors, but weigh them a little differently, which is why your credit score can vary by bureau. 

Here’s the general breakdown of factors and how much they contribute to your credit score:

• Credit history: 35%
• Credit utilization: 30%
• Credit history: 15%
• Mix of credit types: 10%
• Credit inquiries: 10%

According to Canada’s Financial Consumer Agency, making payments on time and keeping balances low are two of the biggest factors affecting your credit score. Credit history reflects how often you pay your bills and repay your debts on time. As you might guess, the longer your credit history, the better, since it gives lenders more details about your repayment habits.

MoneySense Tip
Want to see if you have a credit score? You can access your credit score for free through Equifax and TransUnion. It’s a good idea to review the details that went into your score (if you have one) so you can correct any errors that might be damaging it.

How to build a credit history in 6 simple steps

Regardless of where you are in your credit-building journey, you can establish and grow a strong credit score with these simple steps.

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1. Open a Canadian chequing account

Although this type of bank account doesn’t affect your credit score, managing a basic chequing account can help you develop good money management habits. Plus, having a chequing account makes it easier to deposit funds and make payments.

2. Get a starter or secured credit card

You might be eligible for an unsecured credit card, where you’re given a credit limit, or you may need to get a secured credit card where you make a deposit that becomes the card’s credit limit. Either way, as long as the card issuer reports your payments to a credit bureau, you’ll establish a credit history.

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3. Use less than 30% of your available credit

It can be tempting to spend all the money you’re offered, but repaying your entire credit limit can be challenging. Spending all of your available credit also shows the credit bureaus that you’re stretched for funds and need to borrow to make ends meet. Maxing out your cards will damage the credit score that you’re hoping to improve.

Try to keep your credit utilization ratio below 30%.

4. Pay every bill on time

This is the second-most important credit-building factor. When you make regular payments on your credit card, the issuer informs Equifax or TransUnion. The bureaus see that you can handle credit, and your score will improve over time. 

5. Keep old accounts open

This might seem like a strange step, but it’s strategic. Let’s say you have a credit card with a big balance, but you worked hard to pay it off and now you want to cancel it. Before you rush to close the account, consider how long you’ve had it. If you’ve had the card for years or it’s one of your oldest accounts, closing it could remove an important part of your credit history. It’s better to keep it open, even if you choose not to use the card anymore. 

6. Check your credit report regularly

Remember, you have free access to your credit score reports through Equifax. Take the time to read through your credit report at least a few times a year. This way, you can spot errors and contact the credit bureaus before the incorrect information can damage your score.

Other credit-building options

These are great actions for anyone—especially students and newcomers. We also want to point out a few credit-building options that aren’t as readily available. 

If you have an established credit history but your score needs some work and you need access to credit, look into taking out a line of credit. A home-equity line of credit (HELOC) is a well-known example of this. You borrow against the equity in your home and repay what you borrow. 

The second opportunity is becoming more popular: rent reporting. If you’re a renter and your landlord participates in a rent reporting program, your monthly rent payments are reported to the credit bureaus and will have a positive impact on your score.

How newcomers can build a credit history

If you’re emigrating to Canada, it can come as a surprise to learn that your credit history doesn’t come with you. Instead, you’ll have to build a Canadian credit history from scratch.

Fortunately, most banks and financial institutions offer banking products that are tailored to the needs of newcomers. Let’s take a closer look at how immigrants to Canada can establish a credit history.

Newcomer banking packages

As a newcomer, you probably have a lot to manage as you set up your new life in Canada. Many banks recognize this and offer newcomer banking packages designed to streamline the process of opening financial accounts. 

Here’s how your options compare:

Once you’ve chosen a program, you’ll usually have to apply in person and provide documentation (although some banks allow you to call before you move). Bring valid residency identification, like your visa, permanent resident card, or temporary work permit, along with at least 1 of the following: a valid passport, Canadian driver’s license, or Canadian Government ID Card.

Secured cards

As a newcomer, you might not qualify for standard credit cards until you’ve built a strong credit history. Instead, you can open a secured credit card, which has near-guaranteed approval. 

Here’s how it works: 

• Apply for a secured credit card and make a deposit
• Your security deposit becomes the credit limit for the card
• As you use the card and make payments, the card issuer reports your repayment habits to the credit monitoring bureaus, which builds your score

Since secured credit cards don’t have the most competitive benefits and perks, they’re primarily used to build or rebuild credit. Once you have a great credit score, you can often upgrade the card or switch to a premium unsecured credit card.

Credit builder loans

Fintechs and credit unions are more likely than big banks to offer credit builder loans. These work a little differently than a standard personal loan, where you receive a lump sum of money at the start. With a credit builder loan, you sign up for a program that lasts a specified amount of time, usually several months. You agree to make a monthly payment, and the bank or fintech holds onto the funds while reporting your monthly payment to a credit bureau.

Once the program ends, you’ll receive the funds you paid into the program, and you should have a solid credit score as a result of your efforts. 

Rent reporting services

If you’ll be renting a home after you move to Canada, ask your landlord if they participate in rent reporting. If they do, each rent payment you make will be reported to one of the Canadian credit monitoring bureaus. Although it will take time, you’ll begin establishing your credit history by making timely rent payments. 

The bottom line

It takes about 6 months to generate your first credit score, so it’s important to get started as soon as possible. Opening bank accounts, signing up for a credit card, and participating in rent reporting can all help you establish a strong credit history to set you up for a successful financial future in Canada.

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About Jessica Gibson

Jessica Gibson is a personal finance writer with over a decade of experience in online publishing. She enjoys helping readers make informed decisions about credit cards, insurance, and debt management.

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