Welcome to Canada.
If you were someone like me who grew up in a developing
country, having a credit history will probably be a strange phenomenon to you.
Growing up, access to loans or credit was next to impossible and for a lot of
people, having access to personal funds meant the ability to buy a house, a car
and pretty much everything else. When I got to Canada, I learnt that a good
credit history gives you access to loans, lines of credit, car loans, mortgages,
etc.
Where do you start?
As soon as you arrive in Canada, go to a bank and open a
bank account. You don’t need to have any money to save in the bank. Many banks
have various offers for new immigrants. When opening a bank account, apply for
a credit card too. Most banks will give you a credit card as soon as you
arrive. If you go to a bank and they decline your credit card application, go
to another bank until you get a credit card.
A credit card is like a loan, so for example if you have a
credit card of $1,000, it means you can use the money to buy whatever you need.
You can spend the whole amount and pay back without interest if you pay back
within 21 days. If you don’t pay back the money within 21 days, you start
paying interest on the amount spent. You have a minimum payment you can pay
every month; however, the rule of thumb is this: ALWAYS PAY EVERYTHING BACK WITHIN 21 DAYS. If you pay back any
amount spent within the approved period, your credit score improves because it
shows that you can be trusted to pay back any debt you owe. This is the most
important reason for you to always pay back your credit card debt. Furthermore,
the interest rates on credit cards are quite high. You can have a credit card
with an interest rate as high as 21% p.a.
Credit History – what does it mean?
A credit history is a record of how well or bad you have
been meeting your loan obligations. If you have a credit card, a line of
credit, a mortgage etc.; you have a credit history. There are Credit Reporting
companies who have access to your data as soon as you get your first loan. They
typically match your name, Social Insurance Number, date of birth, address and
other details every time you apply for a loan. You are then assigned a credit
score based on how you meet your payment obligations.
If you have made the mistake of having a high credit card
balance i.e, owing a lot, you can approach your bank for a line of credit. A
line of credit is a loan with a much lower interest rate. If approved, use the
loan to pay off the credit card debt and then make plans on how to pay off the
loan.
At some point, you will need to buy a house and will need a
mortgage, or you may even need a car loan, if you have a good credit history,
it will be easier for you to get approval for the loans. This society is built
on trust, so try and be a person that can be trusted.
Final word: Read the fine prints (terms and conditions) of
any loan or credit card offers. It will help you to understand how things work
and help you in making payment plans.
Good luck.
