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Top Credit Building Tips for Young Adults and Newcomers
- Maha Sultan
- Jun 2
- 6 min read
Updated: 5 days ago
Whether you're a young adult stepping into adulthood or a newcomer getting settled in Canada, understanding how credit works (and how to build it) is one of the most important steps you can take for your financial future. Building credit from scratch may seem daunting, but it’s absolutely doable, and it doesn’t have to take years.
Good credit opens doors, as it influences everything from securing rental housing and obtaining car loans to qualifying for credit cards and even employment in some industries. This article provides practical and proven credit-building tips tailored for young adults and newcomers, with a focus on strategies that yield long-term results in the Canadian credit system.
Why Credit Matters in Canada
In Canada, your credit report and credit score are central to how lenders assess your financial reliability. The two main credit bureaus, Equifax and TransUnion, track your credit behaviour and generate a score typically ranging from 300 to 900. A score above 660 is generally considered good, while anything over 780 is seen as excellent.
According to Statistics Canada, the average credit score for Canadians aged 18–25 is around 680, but many fall below this due to a lack of credit history or limited knowledge of credit-building practices. For newcomers, the challenge is even steeper, as most arrive with no Canadian credit history at all, making it harder to access mainstream financial products.
What Goes Into a Credit Score?
To build and maintain a healthy credit score, it’s important to understand what contributes to it. The key factors include:
Payment history (35%) – Timely bill and debt payments
Credit utilization (30%) – The ratio of credit used to total credit available
Length of credit history (15%) – How long your accounts have been active
New credit inquiries (10%) – Frequency of credit applications
Credit mix (10%) – Variety of credit products (e.g., credit cards, loans)
Credit Building Tips for Young Adults
If you're just starting your financial journey, building credit is one of the smartest things you can do early on. Let’s dive into some practical, beginner-friendly steps to get your credit journey started right.
1. Start with a Secured Credit Card
A secured credit card is an excellent first step. It requires a security deposit, which acts as your credit limit. Use it for small purchases and pay the balance in full each month. This demonstrates responsible credit use and builds a positive payment history.
According to a recent Finder Canada survey, nearly 70% of young Canadians who began with secured cards reported improved credit scores within 12 months.
2. Become an Authorized User
If a parent or trusted relative has a strong credit card history, being added as an authorized user can help you benefit from their good credit behaviour. While not all lenders report authorized user activity, many do, and it can significantly accelerate credit score development.
3. Avoid High Credit Utilization
Aim to keep your credit utilization below 30% of your total limit. For example, if your card has a $1,000 limit, try not to carry a balance above $300. This indicates to lenders that you’re not overly reliant on credit and helps improve your score over time.
How to Build Credit as a Newcomer in Canada
Moving to a new country comes with many adjustments, and understanding the Canadian credit system is an important one. Since your international credit history doesn’t carry over, you’ll need to build it from scratch here.
1. Open a Bank Account Immediately
Most banks offer newcomer financial packages that include credit cards, no-fee banking, and credit-building tools. Establishing a relationship with a Canadian financial institution as early as possible is key. Some banks even provide unsecured credit cards to newcomers with valid immigration documents.
2. Apply for a Secured Credit Card
Like young adults, newly welcomed Canadians can benefit from secured credit cards. By depositing a few hundred dollars and using the card responsibly, you can begin to establish a Canadian credit profile within months.
3. Set Up Regular Payments for Bills
Paying cell phone, internet, and utility bills on time may not always be reported to credit bureaus, but missed payments can appear as negative marks. Additionally, companies like Borrowell and KOHO offer services that report bill payments to credit bureaus, helping you build credit faster.
Habits That Help Maintain and Grow Credit
Always Pay on Time | Your payment history accounts for the largest share of your credit score. Late payments, even by a few days, can negatively impact your score and remain on your credit report for up to six years. Setting up automatic payments or reminders can help ensure you never miss a due date. |
Monitor Your Credit Report | Check your credit report at least once a year for errors or fraudulent activity. Canadians are entitled to one free report annually from both Equifax and TransUnion. Use this opportunity to verify account information and dispute inaccuracies. |
Limit Credit Applications | Every time you apply for credit, a hard inquiry is recorded, which can temporarily lower your score. Frequent applications may signal financial instability. Space out applications and avoid applying for multiple products in a short period. |
Additional Resources and Programs
There are specialized tools and educational resources available to help you build and strengthen your credit. These programs are especially useful for those just starting out or new to Canada’s financial system. Let’s explore a few options that can support your credit-building journey.
1. Credit Education Programs
At SCB Debt Solutions, we offer free resources and professional consultations for individuals looking to improve their credit. Our team of licensed professionals provides tailored advice for both young adults and newcomers, helping them navigate Canada’s credit system with confidence.
2. Use Credit-Builder Loans
Some credit unions and online platforms offer credit-builder loans, which are small instalment loans where the funds are held in a secured account until the loan is repaid. These are designed specifically to build credit and are an excellent option for individuals without a borrowing history.
Common Credit Mistakes to Avoid
Building credit is important, but maintaining it is just as crucial. Many young adults and newcomers unknowingly make simple credit mistakes that can negatively impact their score. Avoiding these pitfalls early on can save you from financial stress down the road. Here are some of the most common ones to watch out for.
1. Ignoring Credit Altogether
One of the biggest mistakes is not using credit at all. While avoiding debt seems like a safe strategy, a lack of credit history can hurt just as much as poor credit when applying for loans or housing.
2. Maxing Out Credit Cards
Using the full limit of your card, even if you pay it off, signals risk to lenders. Keep your utilization low and request a credit limit increase after six months of positive activity to maintain a lower usage ratio.
3. Closing Old Accounts Prematurely
Length of credit history matters. Even if you no longer use a credit card, keeping the account open (and fee-free) helps preserve your average credit age and boosts your score.
FAQs on Credit-Building Tips
1. How long does it take to build a good credit score in Canada?
Building a solid credit score in Canada can take 6 to 12 months with consistent, responsible behaviour, like paying bills on time and keeping credit utilization low. With the right steps, newcomers and young adults can reach a good score (above 660) within their first year.
2. How often should I check my credit score or report?
It’s a good idea to check your credit report at least once a year through Equifax or TransUnion for free. You can also monitor your credit score monthly using free platforms like Credit Karma or Borrowell to track progress and catch errors early.
3. How to increase my credit score in 6 months?
Pay all your bills on time, keep credit utilization below 30%, avoid new hard inquiries, and check your credit report for errors. Using a secured credit card wisely and becoming an authorized user can also help boost your score steadily.
4. What are the top 4 tips for building good credit?
Pay bills on time every month.
Keep credit utilization low (under 30%).
Don’t close old accounts unnecessarily.
Check your credit report regularly and dispute errors.
