Does Bad Credit Affect Immigration?

Canada is quickly becoming a popular destination for immigrants of all backgrounds. Many people looking to immigrate are attracted to Canada because of its welcoming and diverse culture. Hard-working professionals from other countries represent a valuable addition to Canada, but many are unfamiliar with the credit score system and how it can impact the immigration process.

So, does bad credit affect immigration to Canada? Financial flexibility is important, but just because you have a low credit score doesn’t mean you’ll be prevented from immigrating. 

This guide will answer all your pressing questions about credit in Canada.

Will My Credit Score Follow Me to Canada?

If you’re concerned about your credit score before moving to Canada, that’s understandable. Anyone newly arriving in Canada will want a good credit score once they’re here. Good credit is key for buying a car, house, and getting other types of loans.

Just because you have a bad credit score doesn’t mean you won’t be able to immigrate to Canada. The Government of Canada and the immigration authorities don’t evaluate your application based on your credit score.

Credit scores and your credit report from your home country won’t follow you either. Each country has a different methodology for measuring credit scores. Whether you’re moving to Canada from England, India, Brazil, or China, the method of evaluating your credit differs depending on the country.

Although this is good news if you have bad credit, it can also be a bit disappointing if you already have good credit. Many people who move to Canada are surprised to learn that their high credit score isn’t always considered by Canadian lenders. So while bad credit won’t be a problem, your good credit report won’t assist you either.

How Is Credit Score Calculated in Canada?

If you’ve just come to Canada, are in the process of immigrating, or are considering whether to immigrate to Canada, you’ll probably be wondering how Canadian credit scores are calculated. In Canada, credit scores are calculated from 300 to 900. When your score is higher, that means you have better credit.

There are five individual factors used to determine your credit score as a resident trying to acquire a loan:

1. Your History of Making Repayments

If you have a consistent history of paying your debts on time, you’re guaranteed to have a higher score. On the other hand, failure to make payments on time will cause your credit score to go down. 

Arguably, making payments on time is the most critical part of your credit score. When lenders agree to offer you credit, they make money back on the interest they charge for the loan. When you fail to pay back their loan on time, they aren’t receiving any of the money you promised to pay back.

For new residents, even those with a good credit history in another country, a lack of domestic repayment history can pose a serious challenge when getting Canadian loans. You may be able to provide documents proving that you paid back loans in the past, but Canadian lenders will always prefer your Canadian credit history over these foreign payments.

2. What Debts You Currently Hold

The next factor that greatly impacts your Canadian credit score is how much debt you currently hold. Credit card companies want to know if you’ve already borrowed money and how much you owe. For future credit lenders, they want to know if you’ll have the liquid assets and cash to pay back a new loan. For example, a credit card company may issue you a $20,000 line of credit. To avoid lowering your credit score, avoid maxing out your line of credit.

If you have trouble managing your debt and frequently find yourself with maxed-out credit, it may help to speak with a financial planner. Financial planners can help those unfamiliar with the Canadian credit system handle their debt and help you lower your overall debt. Side hustles can also be a way to earn quick cash to pay down debt.

3. How Long You’ve Had Credit

The age of your credit is another important factor considered by creditors when deciding whether to extend you additional credit or give you a loan. If you’re new to Canada, this can be a problem as new immigrants don’t have a domestic credit history. To put it simply, building a credit history will take time. If you have a bad credit history, this can be good news - you’ll be able to start fresh in Canada without worrying about your past mistakes.

4. Your Mix of Credit Types (Credit Diversity)

Today, we’ve come to appreciate the value of diversity, especially when it comes to people, cultures, and ideas. Similarly, credit diversity, or the number of different types of credit you have, is also important. Credit diversity is sometimes called your credit mix. This refers to having revolving credit, installment credit, and open credit. Having more than one type of credit means you have a good credit mix. Credit diversity isn’t necessary to achieving a good score, but it does help. Don’t worry if your credit mix isn’t the best; it most likely won’t prevent you from getting a loan.

5. Your New Lines of Credit

Finally, lenders also look at the new lines of credit you have opened. Making too many inquiries into credit or increasing borrowing limits repeatedly can signal to lenders that you’re taking out excessive loans and might be in financial peril. Avoiding too many new lines of credit will keep your score higher.

What does this mean for immigrants? Those who might be looking for credit (to buy a house, for example) should avoid applying for loans unless they are certain their application can be approved. Otherwise, creditors may see that you’ve recently applied for a large number of various loans, and this could harm your score.

How To Build a Good Credit History in Canada?

Now that you know how Canadian credit scores are calculated, it’s time to learn how you can build a good credit history there. If your goal is to buy a car someday, own a house, or start a business, you’ll need to be able to finance your Canadian dream.

Get a Secured Credit Card

Acquiring a credit card is the best place to start when building your Canadian credit score. Consider starting with a secured credit card. Almost every application for this type of credit card is approved because they require a downpayment to be issued. So if you fail to make a payment, credit card companies can use the downpayment as collateral to acquire the money you owe.

Get a Credit Builder Loan

Credit builder loans, like the one offered by Borrowell, are another great option for people new to Canada. Credit builder loans are designed specifically for people with no credit history, so you will likely be approved for it even with a credit score of zero. 

Unlike traditional loans, credit builder loans don’t pay you your money upfront. With a credit builder loan, you make fixed payments to a lender over time, and they then transfer the loan amount to you at the end of the loan period. For this reason, it’s often useful to think of a credit builder loan as a kind of savings program.

Become an Authorized User

Another great option for building new credit in Canada is to become an authorized user on another credit holder’s account. Often, authorized users are used by families to help their children or other loved ones build credit. However, authorized users don’t necessarily have to be related by blood.

Someone you trust could also add you as an authorized user on their credit card account. It will allow you to make purchases, but the primary cardholder will be responsible for ensuring payments are made on time and appropriately.

Becoming an authorized user is simple and usually just involves an account holder adding you through their lender. Generally, adding an authorized user doesn’t require going through mandatory credit checks. However, keep in mind that not all lenders will report authorized users to credit agencies. If you’re looking to build credit, make sure the lender will report you as an authorized user so that you can build credit.

Make On-Time Payments

Finally, remember to make payments on time. The most frequent problem people with bad credit scores have is that they fail to make timely payments. No matter what loan or credit you take out, making payments on time is key to building good credit.

How Do Credit Scores Affect Your Everyday Life in Canada?

Credit scores are important to everyday life in Canada. Having a good credit score means you’ll have access to some of the best lenders in the world. Through their loans and mortgages, you’ll be able to acquire a vehicle and buy the home of your dreams, whether it’s in Toronto or Vancouver.

What Credit Score Is Needed for a House in Canada?

There’s no straightforward answer to the exact score needed to buy a house in Canada. Lenders look at several different factors when determining your eligibility for a loan. However, the Canada Mortgage and Housing Corporation (CMHC) has a set average credit score of 680, so if you’re looking to buy a house, that’s the credit score you’ll most likely need.

What Credit Score Is Needed for a Car in Canada?

Similarly, car loans are difficult to say what score you’ll need. Most lenders prefer a credit score between 630 and 650 when giving out auto loans. Again, there is some flexibility surrounding car loans, so if you have a score below 630, don’t panic! Consider looking for other lenders or building your credit first.

The Bottom Line

A bad credit score doesn’t affect your immigration application and your chances of moving to Canada. While you may have to demonstrate that you have enough money saved and can work to earn a certain level of income, you don’t have to worry about bad credit until your immigration status is approved. 

Like elsewhere, developing a strong credit history in Canada will take time. Once you have a credit card or loan, ensure to pay the card off in full or make your minimum monthly payments on time. Lastly, you should avoid maxing out your available credit as it can harm your score. Building new credit as an immigrant is simple, and you’ll see a rising score in no time.