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Financial planning tips

January 24, 2013

New country, no credit? Tips for new Canadians

New to Canada and not sure where to start? Establishing your finances will help get your feet on solid ground.

For the better part of the last century, Canada has been referred to as a cultural mosaic, and with good reason. One in five people living in Canada were born outside the country. Statistics Canada reports this is a 75-year high. However, it says four years after arriving, one in five Canadian immigrants still finds it difficult to access social interaction and support, and one in 10 still has financial concerns.

It’s important to understand the following basic financial steps you need to take in order to build a secure financial future:

1. Get a bank account

Getting a bank account allows you to build credit and save money in a secure and easily accessible way. All it takes to get started is to simply walk into a local bank and ask for assistance. Representatives will be able to assess your needs and determine which account options are best for you.

Typically, you will need two pieces of identification to set up an account -- one of which must include a photo. The Canadian Bankers Association provides a list of the many types of acceptable identification.

Setting up an account soon after arriving in Canada will provide you with the cheques you’ll need to rent an apartment and a place to deposit your salary once you start working. You may not need a job in hand and money to be deposited right away.

2. Start building your credit history

Along with setting up a bank account, other ways to begin to establish credit in Canada are:

  • Applying for a credit card and repaying the balance on time each month
  • Consistently paying your bills on time, including rent, utilities, cable and telephone
  • Applying for small loans from your bank and paying them back on time
  • Making regular credit payments on another asset, such as a car loan

While you may have a solid credit history in your home country, as a newcomer, you need to demonstrate that those skills will be applied here as well. Foreign credit scores cannot be transferred from other countries. However, they may be reviewed when it comes to loans or big purchases, such as taking out a line of credit or buying a house.

Starting from scratch, it typically takes 18 months to build a “good” credit score, since that proves you can reliably make payments over a fairly long period of time. Information on credit scores and credit reports is available from the Financial Consumer Agency of Canada.

The information used to calculate your credit score is based on:

  • Your record of employment, including full-time, part-time, contract and casual work, as well as how long you’ve been with the company
  • Whether you own or rent your home
  • Whether you own or lease your car
  • How much debt you’re carrying, including outstanding debt (and what steps you are taking to repay it)
  • Repayment on ‘revolving’ credit, such as credit cards
  • Repayment on ‘instalment’ credit, such as small loans

Once good credit has been established, you may wish to consider buying a home or securing a loan to help you finance other goals.

As with any major purchase, the first thing you’ll need to consider when buying a home is a budget. If you’re uncertain about whether home ownership is right for you or your family, information available from the Canada Mortgage and Housing Corporation can help you make an informed decision.

Another online resource that provides information for newcomers is Settlement.Org, an Ontario government website that offers downloadable guides on personal finance.

3. Plan for your financial future

Once you and your family are settled, it’s time to begin thinking about the future. Even small contributions now can mean a big difference down the road — whether for emergencies, education or retirement.

It’s important to understand the following long-term savings options:

  • Registered education savings plan (RESP): An RESP is a special type of savings account designed to help you save for your child’s education after high school. The federal government provides a grant of 20% of your annual contribution, subject to a maximum grant of $500 per year and a lifetime maximum of $7,200 for each child up to age 17. RESPs are tax-sheltered, meaning you don’t pay income tax on the earnings while the money is invested in the plan.
  • Registered retirement savings plan (RRSP): Similar to an RESP, an RRSP is a special type of savings account designed to promote savings for retirement. The amount you can contribute each year is based on a percentage of your prior year’s earned income (generally 18%), subject to a maximum contribution limit ($22,970 for 2012). The contributions you make to an RRSP provide an immediate tax deduction, but are taxable when withdrawn. The income earned on your investments is tax-sheltered inside the plan and taxable only when withdrawn. As a result, your contributions reduce your annual income tax, and, assuming you’ll be in a lower tax bracket when you withdraw the money, you’ll save substantially on the overall amount of tax you pay during your life in Canada.
  • Tax-Free Savings Account (TFSA): TFSAs were designed to supplement RRSPs, since they provide you with another way to shelter a portion of your investment earnings from income tax. You may contribute a maximum of $5,000 per year from 2009 to 2012 and $5,500 for 2013, and there is no tax payable on investment growth.

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