Credit in a New Country
A Guide to Credit in Canada
Mortgage
It is possible to get a mortgage even if you don’t have an established credit history. To learn how to buy a home for the first time, review our publication Buying a Home, available free at http://www.consolidatedcredit.ca/ in the Learning Centre.
Traps and Scams to Avoid
Advance Fee Loan Scams: Scam artists are preying on vulnerable consumers by making big promises with no follow through. You have probably seen it on television, on the radio or even in your mailbox. They will offer the promise that you are guaranteed approval for a loan or credit account regardless of your credit history. It typically sounds too good to be true, because it is. Thieves will promise you money regardless of your credit history with one requirement. A fee. After they obtain your money, you will end up with nothing. You should not have to pay a fee in advance to get a loan.
Some legitimate companies do charge fees in addition to interest for you to borrow their money. The difference is that a legitimate company will factor the fee into the loan amount or bill you an additional amount of one of your statements. For example, if you have a credit card that offers a travel points program, they may charge an annual fee that will be billed on one of your statements. If a company offers to give you a credit card with a travel program after you send them $100, a red flag should go up. Total credit card fraud losses reported in 2004 reached $300M according to RCMP.ca
Guaranteed Unsecured Credit Cards: Be very suspicious of cards that guarantee you that you will be approved. These come-ons usually fall into one of two categories.
- Cards that may sound like major credit cards, but can only be used to buy merchandise from the companies' catalog. These cards usually are not very helpful in establishing credit. In addition, the merchandise may require large down payments, and be overpriced.
- Cards that are major credit cards but carry very high fees. You may get a starting credit line of $300, for example, but the fees on the first bill may total $250 or more, leaving you with very little available credit. Unlike a secured card, where your deposit will be returned if you pay your bills, you will never get those fees back.
Payday Loans: Cheque cashing outlets will allow you to borrow against your next paycheque, for a fee. The fees on these short-term loans are so high, however, that the effective interest rate can be over 400%! In addition, if you cannot pay back the loan in full with the next paycheque it will be rolled over to the next, and you may end up in a vicious cycle where you are unable to ever pay off the loan. The government of Canada provides an educational booklet on the cost of payday loans. You can view this booklet in its entirety at http://www.fcac.gc.ca in the Consumer Section under Credit, Loans and Debt.
