How to use your credit card responsibly as a newcomer

Whether you’re looking to rent a home in Canada, finance a purchase or apply for a loan, good credit is important to help you reach your goal. But if you’re new to Canada, your credit score or credit history from your home country may not be considered by Canadian credit rating agencies. So, for many newcomers, using a credit card is often the easiest way to start building your Canadian credit history when you arrive in Canada.   

To reap the most benefits, though, you’ll need to use your card responsibly to demonstrate creditworthiness. Read on for seven strategies to help you manage your credit, build your credit history and boost your credit score.   

1. Stick to one credit card, if you can  

Using credit responsibly starts before you ever make a purchase. It’s simplest to start building your credit history with just one credit card, if possible, rather than using several credit cards at once. 

Taking out just one card makes it easier to monitor and manage your credit while you build up your credit history, without the complexity of multiple cards. If you have credit cards from different financial institutions, you will need to keep track of your spending, balance payments and billing cycles in different banking platforms or apps, which might get confusing. 

Be sure you don’t miss any payments or this could end up hurting your credit score instead. You can always get an additional credit card later on, once you’ve gotten more comfortable with credit in Canada.

With a single card to begin with, you’ll be able to keep track of your purchases and payments more easily and stay on top of your financial goals. And thankfully, there are a range of credit card options available for newcomers to Canada, including international students.      

Learn more: How to find the right credit card as a newcomer to Canada

2. Pay on time, every time  

Keeping up with your credit card payments is critical to building your credit, since your payment history is the biggest contributor to your credit score.  

You should aim to pay off your credit card balance in full each month and avoid carrying a balance. However, if that’s not possible, ensure you’re making at least the minimum payment — and paying off as much of the balance as you can — on time. Even a single late payment has the potential to lower your credit score — and, depending on the terms of your credit card, it may increase your interest rate.  

Create a strategy to ensure your card is paid on time. When you get your card, set up automatic payments through online banking, over the phone or on your bank’s mobile app, and use automatic transfers to ensure you have enough money in your chequing account to cover the payment.  

3. Mind your credit utilization   

A maxed-out credit card isn’t just financially stressful; it can also impact your credit score. Your credit utilization ratio — the percent of your available credit you’re using — is also a large factor in determining your score.  

Equifax, one of the three major credit bureaus, notes that lenders generally prefer a ratio under 30%. While it’s ok to exceed this ratio occasionally — and it’s normal for your credit utilization ratio to fluctuate throughout the billing cycle — try not to make a habit of it.  

You can calculate your credit utilization ratio by dividing the balance on your card by the card’s available credit. For example, if someone has a $300 balance and a $1,000 credit limit, their credit utilization ratio is 30%. 

If your ratio exceeds 30%, paying down your balance mid-cycle will bring it down to zero again, although there may be a lag time before your updated ratio shows up on your credit report.

4. Monitor your credit report   

Your credit report contains details of all the credit you’ve accessed in Canada, including current or prior credit cards, loans and more. 

As you build your credit history, it can be helpful to continuously check your credit score and track your progress. It also allows you to look through the details of your report to ensure everything is accurate, and identify — and correct — errors if they occur.  

There are several ways to check your credit report and score. The Canadian Government provides detailed instructions for how to access your credit report and score for free. You can also check your credit score with RBC Online Banking.

5. Learn to identify risky credit behaviors   

While good credit behaviors can boost your credit score, risky credit behaviors can lower it. The ability to recognize the early signs of risky credit use allows you to check in on whether you’re using credit mindfully and identify any behaviors you’d like to change before they become a significant problem.  

As you monitor your credit use, watch out for these potential red flags:     

1.  Paying down less of your balance than you intended to     

2.  Consistently using credit to spend more than you bring in each month     

3.  Using one credit card to make the minimum payment on another credit card.         

If you’re concerned about your credit use, consider speaking to a financial advisor. They can offer insights on how to manage your credit — and how to use credit in a way that works with your budget.   

6. Build credit  into your overall financial plan   

While credit cards offer an easy and convenient way to build your credit history in Canada, they’re just one piece of the larger financial puzzle. Building a strong financial future means using credit cards alongside other financial tools suited to your needs, including the right banking accounts, as well as trusted insights from a financial advisor.

RBC is here to help, with solutions for permanent residents, foreign workers and international students. Visit us online to learn more.

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