How to build your Canadian credit score as an international student in Canada
Having good credit is important, but it’s hard to build credit without credit. It’s not always easy for international students in Canada to build their credit scores. However, there are ways to make it happen.
1. Find a student credit card
Student credit cards are geared toward students who don’t necessarily have much of a credit history (a record of how you’ve paid debts). Student credit cards are best for those who are credit invisible or don’t have a high credit score to qualify for other types of credit cards.
If approved, you may have a low or limited maximum credit limit. But having one and using it responsibly helps build your credit. You can make purchases using the card and then pay off the card in full at the end of the month.
To be responsible with your card, only make purchases you could pay for without your credit card. This helps ensure you don’t overspend, carry a balance and get into credit card debt. Keep in mind that not all issuers report to the major credit bureaus in Canada. So find the ones that report to Equifax and Transunion.
2. Consider a secured credit card
A secured credit card is a card where your deposit acts as your credit limit. Many issuers have minimum amounts you can deposit at varying levels, depending on your income and what you can afford.
You can use your card up to the maximum limit and once you pay off your card, you can do it again. Doing this for a few months will build up responsible credit card use and potentially make you eligible for moving over to a traditional credit card. Most credit card issuers return your deposit as well after you make the move.
Make sure you select a card that reports to the major credit bureaus in Canada: Equifax and Transunion. This is an important step, because without having this documented record of your responsible credit usage, you won’t be able to benefit from your prior history and lay the foundation for enabling access to other credit options in the future.
3. Keep a low credit utilization
Your credit utilization is how much credit you carry from month to month compared to how much is available to you, usually expressed as a percentage. The higher your credit utilization, the more risk you present in being able to repay your outstanding balances as agreed. Lower utilization means you’re responsible with credit and issuers are more likely to extend additional loans to you.
Keeping your utilization under 30% is great, but the lower, the better.
4. Start paying back your student loans
Your student loans may already live on your credit report. The sooner you start to pay regularly on that debt (even a little bit), the sooner you’ll see your credit score improve. The more you can pay down your student loans now, the less you’ll have to pay back once you graduate. MPOWER Financing student loans allow you to make monthly, interest-only payments while in school and for the following six months after graduation.
5. Create a spending plan
College students get a lot of flack for being broke and without a lot of extra cash. And while that’s true for many students, there are ways you can live within your means.
Start by creating a spending plan. List out all of your expenses, including monthly bills like your phone bill and car insurance. Then put in your discretionary expenses, like dining out, groceries and gas. Include anything that varies in cost but you can average out over the last few months. Use your bank or credit card statements to help you get an idea of how much you’re spending here.
Then write out all your income sources, whether that’s money from student loans, a job, parental support or something else. Use your income to help craft your expense goals.
Next, use your budget to figure out how to live within your means while also using other resources. For instance, use a credit card to pay for groceries and gas and then make regular, on-time payments on that card every month.
Your spending plan is a living, breathing document. While it can take a bit of time to set up, you won’t want to set it and forget it. You’ll want to fill in your expenses often to see if you’re on track each month, living within your means. Things happen and expenses can change, as well, so it’s good to review and update your spending plan categories and planned spending regularly, whether that’s every week, month or few months, to stay the course.
6. Check your credit score
Check your credit score and report – even if you’re just starting out on your Canadian credit journey. Being credit invisible can make it difficult to get started, but seeing your starting point helps you figure out next steps. It also helps you see what creditors see.
Try to check your credit score regularly, even if it’s monthly. Some credit bureaus update scores weekly, and you might see fluctuation more often than every month. Keeping tabs on your credit score is a good way to see if you’re on the right track.
Next steps: Building your credit score in Canada
International students can build up their credit score in Canada a few different ways, but it might take some time to get things going. Try to get and use a line of credit any way you can, whether that’s a secured credit card or a student credit card.
Try to pay down any debt you’re carrying right now, even student debt. Making small and manageable payments while you’re in school means there’s less you’ll pay when you graduate. Create and manage your spending plan, even if you don’t earn a lot of money right now. Following a spending plan to take care of your financial needs and live within your means each month is one of the best ways you can become financially solvent and be in a good position to grow your credit score, even as an international student in Canada.
