Why is credit history so important in Canada?
In Canada, you just have to use credit or at least open a credit card.
You know what I did on my second day in Canada? I went and opened a credit card. And they gave it to me with the wrong name, which I hated. I will tell you about this situation, why you need a credit history, why it is so hard to live in Canada without one, and how to get $400 CAD.
Before I immigrated, I hardly ever used credits for several reasons. First, I did not like to be indebted, second, the interest rates were very high, and third, the economic situation in the country where I lived was unstable. Once I moved to Canada, everything changed. Here you just have to use credits or at least have a credit card. Let me tell you why.
I would like to clarify one thing. I left Ukraine in 2015, I had several bank cards, but they were not credit ones. I couldn't use them to spend more than what was in my account. In Canada, even if you don't have money on your card, you can easily pay $500 CAD or even $5,000 CAD in a store, it all depends on the credit limit.
In Canada, 72% of people have at least one credit card — a major first step to starting a credit history. Many banks offer bonuses for using cards. And it's a real benefit!
Advantages of the credit card
Let's imagine you want to buy something for $1,000 CAD including taxes. If you pay with cash, you are left with 0. I have a credit card that gives me 2% cashback. If I pay with the card, I get $20 CAD in my account. A small thing, but nice. Over the year this way I accumulate hundreds of dollars, which I simply transfer to my account. In addition to my personal credit card, I also have a corporate card, which also accumulates money.
But that's not all — my credit card has additional bonuses related to car rentals. If I fly to the U.S., for example, and want to rent a car, I don't have to take out any additional insurance. The card will cover the costs if I get into an accident.
There is another type of credit card — when you pay with it, you get not cashback, but air miles. This type of card is often asked for at the cashier's desk. I prefer to have a small discount right away than to use those miles later on air travel.
From the moment you open a credit card, your credit history will begin to form. Let's look at examples of where it's used and why it's so important. Let's start with the trivial — where do you plan to live in Canada? If you are thinking of renting housing, chances are you won't get it without a credit history, or with a bad credit history when you get into card debt and don't pay it off on time.
I lived in two provinces, Quebec and Ontario. There, the laws are arranged in such a way that they primarily protect the interests of tenants, not landlords. That is, if a tenant stops paying rent, it will be very difficult to kick them out. Courts can drag on for years, and landlords will be left without money. In order to somehow filter out non-payers, they often ask for a credit history.
Let's move on. Let's say you manage to rent housing, you settle down in Canada, you find a job, and you realize that you are just paying someone else's mortgage. With the money you pay for the rent, the landlord pays off the loan, and in 25 years they will have a fully paid-off apartment or house. And you won't have a place of your own during that time. That's why almost everyone I know bought their house with a mortgage during the first years of living in Canada. But again, your credit score is important. The better it is, the less interest you will have.
Of course, newcomers will not get a car loan in Canada without a credit history either. I didn't even though I showed that I had money in my account.
Why else would you need a credit card
I'll lower the bar even further and talk about the purchase of household goods. Statistics show that 20% of Canadians pay with credit cards for things they can't buy themselves. Let's imagine you make $5,000 CAD a month in Canada. A third goes to taxes, about $2,000 CAD for rent or mortgage, and the rest for food and other small things. Let's say your phone has broken down and you just can't allocate the money to buy a new one right away. I bought the latest iPhone last year on an interest-free installment plan. I was able to do this because of my good credit history. Every month I get a few dozen dollars taken out of my account, and I don't even notice it.
Large banks often give new immigrants cards even without a credit history, but the limits are usually small. When we first immigrated to Canada, we were able to get credit cards without any problems. My wife and I were each given a card with a credit limit of $1,500 CAD and a few hundred dollars each to our accounts. That's how people in Canada are trusted. We were literally entrusted with $3,000 CAD for two people on our second day in the country.
The unpleasant thing is that my first card was printed with the wrong name. I am Alexey, but it's written Oleksii in my Ukrainian passport because of transliteration. Canadians can't read this name properly, and every other person calls me Oleskii. For this reason for several years, I present myself as Alex and I am thinking to change my name in documents.
It is important to understand that if you have a credit limit of, for example, $1,000 CAD on your credit card, it is not your money. You just borrowed it temporarily. You have to top up the card within a month, otherwise, your credit history will get worse and you will be fined. But it's not as big in Canada as it was in my home country — as far as I remember, about 25% per annum.
Do you want to get $400 CAD, and free account maintenance for two years? Click on my link and open an account with CIBC Bank, which is my primary account. You have to be a Canadian resident or have a job contract. It is also important to meet the other uncomplicated requirements, so read the text on the page carefully.
Alex Pavlenko, founder of Immigrant.Today