Young Gen Z Canadians, ages 20 to 24, are leading the country in credit adoption, but many of them are experiencing barriers to getting credit cards, primarily because they have no credit history. Newcomers to Canada also lack Canadian credit history. What should young Canadians or recent immigrants do if they want to start using credit cards and have no credit history?
What do lenders mean when they say you have insufficient credit history?
Having no credit history doesn’t mean a low or zero credit score. Canada’s two credit bureaus, TransUnion Canada and Equifax Canada, keep records of credit use and assign credit scores ranging from 300 to 900. When you start using credit, your score will likely be in the mid-range of these numbers.
Insufficient credit history means you haven’t used credit enough for lenders to determine how likely you will be to pay your bills on time. Among people who’ve been using credit long enough to gain an account history, the longer accounts have been open, the less risk lenders perceive.
What are strategies to get started with credit cards?
One 22-year-old Canadian had been working for over three years and saved $20,000, avoiding a credit card because he wasn’t certain he could use it responsibly. When he applied for credit cards, lenders declined him because of his insufficient credit history.
Since he had savings, he could apply for and quickly receive a secured credit card. A secured credit card is one of the most efficient ways to establish a credit history for new credit users. To get the secured card, you deposit the amount of money you want for a credit limit with the bank which issues the card. After a few successful months of use, you will see your credit score rise. The bank may also increase your credit limit, or convert the secured card to an unsecured card.
Applying for a credit card with a co-signer or co-borrower is another strategy for building credit. If you have a family member or friend with good credit who’s willing to apply with you, chances of approval increase. Be sure to pay your bills on time because any problems will reflect not only on your credit but also on your co-applicant.
Some banks offer credit products exclusively for Canadian and international students. New borrowers may also be eligible for some department store and high-risk credit cards, but use these with care: they often come with high interest rates.
Should I pay off my credit card every month after I start using it?
Nearly every financial advisor will say “never charge more than you can pay off every month.” Most people want credit cards because they may need them in case of emergencies or major purchases. If you do charge more than you can pay off in a single month, make sure you have a plan for paying the balance on your credit card as quickly as possible. The less credit you use of the amount available affects your credit score as much as paying your bills on time.