Road to home ownership: How to establish a credit history in Canada
For many people in Canada, buying a home is an exciting occasion, and they look forward to it with great enthusiasm. For newcomers, though, the process of buying a home can often start with more questions than answers. In this three-part series, we’ll help to outline some of the stops along the road to home ownership for those who are new to Canada.
One challenge for those learning how to get approved for a mortgage in Canada is navigating a new, unfamiliar credit system. In this post, the first in the series, we’ll share some tips on how to build a credit history in Canada.
Why is Canadian credit history important?
When learning how to get approved for a mortgage, one of the most common pieces of advice you will hear is to ensure that you have a good credit score. However, for many of those who are new to Canada, the challenge isn’t one of having bad credit – it’s one of having no credit history at all. Before starting on the road to home ownership, it will be beneficial to build a credit history in Canada that your lending institution can consider as part of your application for a mortgage. Here are three actions you can take to start establishing credit in Canada.
1. Apply for utilities in your name.
If you are temporarily living with family while getting settled in Canada, setting up utilities in your name can be difficult. However, companies like cell phone providers are often a good place to start when establishing credit. A good credit rating doesn’t happen overnight, but as you open new credit accounts in your name and make regular, on-time payments, this activity is reported to credit bureaus and will serve you well when the time comes to apply for a mortgage.
2. Consider a secured credit card.
From shopping online to booking reservations and ordering dinner, it can be hard to navigate life in Canada without a credit card. With a secured credit card, like the Home Trust Secured Visa, you provide a deposit, usually equivalent to the card’s credit limit, and then you can use your card to make purchases up to the amount of your deposit. When you make regular payments towards your balance, this behaviour is reported to credit agencies, and your credit score number may increase based on that reported behaviour.
3. Take care to pay bills on time, every time.
One of the factors that can affect your credit score is the way you use credit. While establishing your Canadian credit history, it’s crucial to make sure all of your bills are paid on time, and it’s also a good idea to make more than the minimum payment each month on credit cards.
How long does it take to build a credit history in Canada?
When you are considering how to get approved for a mortgage, it’s natural to wonder how long it will take before you can start to make your dreams a reality. Every lender operates a little differently, but it could take 18 months or more to build enough credit history in Canada to apply for a home loan.
According to an Environics research report that Home Trust sponsored in 2020, 81% of people who are new to Canada and planning to buy a home in the next few years felt that the process would be challenging. With this three-part Road to Home Ownership series, we hope to address some of those concerns to make buying your first home in Canada easier. Be sure to read the next posts in the series to cover some of the bases to buy a home, like how much house you might be able to afford and which professionals you should consult.
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