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So you are a new Canadian, eh?

by Tim St Vincent

So you are a new Canadian, or you just arrived and you are working down the long road to becoming a Canadian. What do you need to know about the Canadian financial system to succeed? Well, in a word; everything! Now, that sounds a bit scary, doesn’t it? Not to worry, you can learn it in small bits and pieces. I have lived here all of my 55 years, and I still don’t know everything (Shhhhh. Don’t tell my wife!).

Let’s start with some basics. Did you have a credit history in the country you came from? Was it good? Was it bad? Doesn’t matter. When you move to a new country your credit score from your previous country doesn’t move over with you. For good or ill, you start all over. If you had a credit score that wasn’t so good, this is your second chance to do well. If you had a good score before, no worries, the habits that you exhibited, that gave you that good credit score, will serve you well in Canada. You will soon re-establish a good score here! Maybe you didn’t have a credit score where you came from. If that is the case, you may want to contact us, or speak with your bank or credit union to better understand our credit system. Unfortunately, this article is far too brief to cover it all.

What is the first thing that often happens to a new arrival with respect to credit? They are offered some! “Welcome to Canada. Here, have a credit card!”

“Where is the ‘owner’s manual,’” you might ask. Well, there really isn’t one. You do get a “terms and conditions booklet, but it is so thick and full of legal terms, and in very small print, that hardly anybody reads it – including those of us born here!

So how do I handle my new Canadian credit? Let’s start with the basics. Get a credit card with a small limit. Start with just $500. That way if you make any financial mistakes the impact will be fairly small as you only have a small credit limit. Sometimes a new arrival to Canada may have problems getting their first credit card. After all, you are brand new here, and the lending agencies don’t really know who you are.

You may want to look at getting a special type of credit card often offered to new arrivals. It is called a secured credit card. Many people are not familiar with this type of credit card, but most banks and credit unions will offer them. This is how they work: you go to a bank and ask them for a secured credit card. You then give them some money to hold as “security” (hence the name secured), maybe $250. They will then take this money and put it in a trust account in your name and hold it for you. In exchange for the $250 they will give you a credit card for $500. The amount may vary – I am just using this amount as an example.

Congratulations, you now have your first Canadian credit card! You can use this card just like any other regular card: use it, get a bill, and pay it off. The financial institution that gave you the card has a year within which to decide, essentially, if they trust you. Within that year they will watch how you use the card; do you stay within its limits? Do you pay it off on time? Are you late? If so, how often are you late and by how many days? Eventually, within the year they will come to a decision. Either they trust you and you are using the card responsibly, or they don’t trust you. If they trust you, then they will give back your $250 security deposit, cancel the $500 secured credit card, and give you a regular credit card, typically with a larger limit. Be careful; don’t get too large of a card! I wouldn’t start off with anything more than $1000. If things haven’t gone well, they will use the $250 security to pay off any balance owing on the card, return to you any of the $250 that may be left and cancel your card. This isn’t a good outcome as it could be very challenging to get another credit card for quite some time.

Secured credit cards aren’t just for new arrivals. Anyone with poor credit can apply for them. They can be a great way for someone with no credit or poor credit to establish a solid credit history. There are many other things that you will need to know about our financial system. Come back here and I will have another article next month, or you can read past articles to catch up!

If you have any questions or topics you would like me to discuss in future articles, or comments you would like to share, please contact me at tim.stvincent@nomoredebts.org.

Tim J. St Vincent is a retired CFP and is a Certified Educator in Personal Finance with the Credit Counselling Society, a Non-Profit organization. If you wish to contact the Society for further information, assistance or to attend a webinar, please call 1-888-527-8999 or visit www.nomoredebts.org or www.mymoneycoach.ca.

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