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A newcomer’s guide to types of credit

KEY TAKEAWAYS

✔ Canada offers many safe and reliable borrowing options to help new Canadians build their credit. 

✔ The most common types of credit include revolving credit (credit cards and lines of credit), and non-revolving credit (installment loans).

✔ Talk to a loan expert before you borrow. They can recommend options that fit within your budget.

It takes a lot of time, determination, and money to leave home to put down roots in a new country. There’s so much to learn and not always enough time to figure it all out. As a newcomer to Canada, you may face financial challenges in the first few years, like: 

  • Establishing your credit history.
  • Borrowing money.
  • Launching your career. 
  • Financing a family car.
  • Managing debt. 

Fortunately, Canada has a global reputation as a good place to find safe, reliable borrowing options that can help set you up for a bright financial future. 

This guide explains all your credit options as well as things that can damage your credit so you can understand when and how to borrow with confidence. 

1. Credit cards

It’s difficult to imagine day-to-day life in Canada without a credit card. We tap for groceries, gas, coffee and diapers. However, all of those taps, swipes and clicks can have a negative effect on your credit score if you end up charging more than you can afford to buy and, if you don’t pay off your balance every month. That’s because a credit card is a form of “revolving credit”. 

This means any unpaid portion of the balance rolls (revolves) into the next month, along with the interest you owe. There is no deadline or end date on the credit. As long as there is credit available it can be used. It’s not a problem if you pay off all or most of the balance, but sometimes that’s not possible. That’s where your credit rating can get in trouble. 

Your credit gets damaged when you: 

  • Make a late payment.
  • Apply for a new credit card.
  • Max out your credit limit.  

2. Lines of credit

Lines of credit make sense for many people, especially when you’re still trying to determine the cost of living in a new place. This type of credit lets you borrow any amount up to your available credit limit with the option of making the minimum payment or paying off the outstanding balance at any time. 

Lines of credit are always active; you don’t need to keep re-applying for credit every time you need additional funds.  Like credit cards, lines of credit are also a form of revolving credit. You must make the minimum payment on your outstanding balance. Beyond that, you’re in control of how long it takes to pay off your debt. That’s good if you have the discipline to pay it off fast, but not so good for your credit rating if you: 

  • Make a late payment.
  • Owe a lot compared to your income and ability to make payments. 

3. Personal loans

Personal loans are the opposite of revolving credit. You pay them back over time and when you have paid off the amount you borrowed plus interest, the payments stop. Each payment on a personal loan is called an “installment” so you may hear people refer to personal loans as “installment loans”. It’s the same thing. 

There are two types of loans: 

Secured loans involve an asset, such as your home or car, which lenders can use as security against the loan. This is called collateral. If you default on the loan, lenders could sell the asset to pay off the loan. Secured loans are seen as less risky and therefore usually have lower interest rates.

Unsecured loans have no security tied to them which means they can have higher interest rates, as they’re considered a bigger risk. Most come with flexible payment terms so you can borrow what you need to fit within your budget. Unsecured loans can be used to consolidate your debts, cover unexpected expenses, make home improvements, and for any time you need some financial relief. 

The steps to getting a personal loan 

Did you know? 
An installment  loan from easyfinancial can help you build credit with payments that fit your budget.

1. Choose an amount

Using an online calculator or speaking with someone at your local easyfinancial branch can help you determine how much you can comfortably afford to borrow based on how much you make plus your expenses.

2. Decide how much time you need to pay it off

A loan can have a term from 9 months to 84 months. The longer the length of the loan, the lower the regular payment amount. 

3. Time your payments

Many people find it convenient to time their loan payments with their incoming paycheque. That’s why most loans provide the option of weekly, biweekly, bimonthly or monthly payments. 

Learn more about installment loans in this 5-minute primer. 

TIP: Set up Automatic Transfers from your bank account so you never miss a loan payment. Once you settle into making regular payments, you may want to speed things up by making lump-sum payments to pay off your loan faster.

Looking to build your credit in Canada? Whether you are looking to consolidate debt, cover bills and expenses, furnish your new home or buy a car, easyfinancial can help. We provide loans to new Canadians and accept applications from newcomers with no credit report. Talk to one of our loan experts at your local branch or apply online today. 

Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.