Every year, over 250,000 new permanent residents make Canada their home. To support this influx, the major banks offer attractive banking packages for newcomers, often including credit cards. However, many newcomers, unfamiliar with credit cards, can find themselves in financial trouble. If you’re new to Canada, here are some tips to help you use credit wisely and avoid potential pitfalls.
Brian Smith, an employment counsellor and financial coach at Carrefour jeunesse-emploi in Montreal, has witnessed these issues firsthand. He assists young immigrants, aged 16 to 35, who often accumulate significant debt due to credit card misuse.
A 2014 BMO Wealth Institute Report highlighted that finding employment and managing finances are among the top challenges new immigrants face. Many newcomers use credit cards to bridge income gaps, which can lead to serious problems. “Many create serious problems for themselves due to a lack of knowledge and social pressures to buy now and pay later even if they do not have the money,” says Smith.
1. Decide if you really need a credit card. A common myth is that you need a credit card to establish credit in Canada. Paul Le Fevre, director of operations at Equifax Canada, clarifies that Equifax creates a credit file as soon as you open a bank account, credit card or not. Canadian banks can also access your credit report from your home country through Equifax.
Smith suggests delaying getting a credit card until you’ve developed strong money management habits. When you’re ready, research thoroughly. The Financial Consumer Agency of Canada (FCAC) offers online resources explaining how credit cards work, along with your rights and responsibilities as a cardholder.
Community service organizations often provide financial literacy training, and non-profit credit counselling agencies offer personalized advice on credit card usage. Many bank branches also host newcomer financial advice events where you can ask questions about credit products.
2. Avoid the minimum payment trap. Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services, helps clients who send money to family abroad and stretch their budgets thin. Some believe paying only the minimum due on their credit card is sufficient, justifying more remittances home.
“While the money they’re sending is a valiant effort and supports family, taking out payday loans or falling behind on credit card payments puts them in a hole they may not be able to get out of while they’re [in Canada],” Schwartz warns.
3. Consider a secured credit card. Unsecured credit card debt can spiral out of control if treated as free money. A safer option is a secured credit card, which requires collateral equal to your credit limit. Secured cards can also help build your credit rating. Le Fevre explains that new Canadians can start building their credit score by making regular payments on a secured card, with improvements visible within three months.
4. Be careful with shared credit cards. Becoming an authorized user on someone else’s credit card account is another option. However, Le Fevre notes that authorized user activity often doesn’t appear on your credit file, so it won’t help build your credit score.
Joint credit cards, on the other hand, do affect your credit score. If you share a card with a spouse, parent, or adult child, both your scores can improve with good management. Conversely, any late or missed payments will negatively impact all co-signers. Authorized user cards are common in Canada, but joint cards are less so. RBC allows new immigrants to become joint cardholders with an established Canadian or another newcomer.
5. Watch your card limits, limit your cards. Credit limits for newcomers can start at $1,000 or more, but you don’t need the highest limit. “They can probably start building their credit with a $500-limit credit card, reducing the risk of deep debt,” Schwartz advises.
While immigrant-friendly credit cards offer tempting rewards like travel points, merchandise, and cash back, avoid the lure of multiple cards. Carefully consider the terms and your potential debt level. “Newcomers need to do their due diligence regarding anything offered to them to ensure their best chance of success,” says Schwartz.
By following these tips, newcomers to Canada can navigate the credit landscape more confidently and avoid common financial traps.
