Credit Cards & Credit History
As a newcomer to Canada, it is imperative that you get yourself a credit card. Even if you are the kind of person that does not like taking on debt, I would still recommend you get a credit card and use it. This is because you need to build your credit history in Canada and a credit card is one is the most effective ways to build this credit history quickly.
So what is a credit history?
Well, in simple terms it is an account of how well you have handled debt in the past. The companies that track credit history will maintain a record of how much debt you took and how prompt you were in making your payments towards that debt. If you use your credit responsibly and make your payments on time, your credit score will increase. And when companies see the high credit score they will feel comfortable offering their products to you. It is building a good financial reputation for yourself in Canada.
The credit history from your home country is not available to companies in Canada and they cannot use, even if you are coming from the USA.
Do I have to build a good credit history?
A good credit history means that you have a good financial reputation. And companies want to deal with good customers, the same way you want to buy from companies with a good reputation. But banks are not the only companies that look at credit history. Many other companies also look at your credit score before offering you their products and services. This can be a phone company, a rental apartment building, a car dealer, a utility company like water or electricity or an insurance company.
Which credit card do I choose?
As a newcomer, you will not have a credit history or a very high score. Go to a bank that is willing to offer you an unsecured card (which means that they will offer you a card without you having to put a deposit). But even if you cannot get the unsecured credit card for any reason, get a secured credit card. Your deposit may get locked up for possibly 1 year, but the credit card will help you of build a credit history quickly.
And how should you handle the credit card?
Get a credit card (secured or unsecured) from your bank and set up an auto debit facility that will authorize the bank to debit 100% of the amount from your banking account on the due date. This will do 2 things – one, you will never be in debt; and second, you will have an amazing track record of paying your bills on time, every time. You will have a healthy credit history in 6-8 months. But make sure that there is enough money in your account to pay for your purchases at the end of the month. Don’t spend money on your credit card you cannot pay for.