May 29, 2026
Consider a situation like Priya's — a composite example based on common financial challenges many newcomers face when arriving in Canada.
When Priya arrived in Toronto from Bengaluru, she had a graduate degree, a job offer and years of financial experience behind her. What she didn’t have was a Canadian credit score.
Advertisement
Within six months, she had financed a used car at 28% interest and taken on a short-term personal loan to cover a rental deposit because nothing else was available to her.
Unfortunately, stories like Priya’s are not unusual.
According to a report from TransUnion, which is one of the nation’s main credit bureaus, Canadian newcomers added $2.6 billion in new credit balances in the first quarter of 2025, up over 6% from the previous year.
This isn’t because newcomers are irresponsible with money. More often, it’s because they’re navigating a financial system that doesn’t recognize their credit history from back home.
Without an established Canadian credit file, many individuals are pushed toward some of the most expensive borrowing options available at a time when they’re already facing significant financial pressure.
Here is what the data shows, and what newcomers can do to avoid falling into a costly debt cycle.
The hidden cost of having no Canadian credit history
Canada's credit system does not account for international credit history. This means that someone who spent years responsibly managing loans, mortgages and credit cards in another country may arrive in Canada and effectively have to start from scratch.
Advertisement
From a lender's perspective, there is no Canadian credit score, no Canadian borrowing history and very little information to assess risk.
The Financial Consumer Agency of Canada (FCAC), a federal agency that protects the rights of consumers of financial products, notes that without a Canadian credit file, applicants are typically declined for standard credit cards, leaving secured products or alternative lenders among the only viable options.
Those alternative lenders, which can include payday loan companies, generally charge much higher interest rates than their more conventional alternatives, such as banks or credit unions.
The result is often a heavy debt load shortly after arriving in Canada, which takes longer to pay down.
Advertisement
Not sure which card fits your lifestyle? Use our Comparison Tool to filter by 135 different metrics and find your perfect match in seconds.
Must Read
- Warren Buffett used these 4 solid, repeatable money rules to turn $9,800 into a $150B fortune. Here’s how to apply them to your own life
- Stop the leak: 5 costs Canadians (still) overpay for every single month. How many are sabotaging your 2026 budget?
- This 7-step plan from Dave Ramsey is designed to help you ditch debt, save more, and build wealth — here’s how it works
Join 19,000+ readers and get Money.ca’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Financial products that trap newcomers in a debt cycle
The following credit products may disproportionately affect newcomers:
- High-rate auto financing. Sometimes called “bad credit” car loans, rates as high as 30% are common. At that level, the total cost of borrowing on a vehicle with an $18,000 purchase price over five years would be close to $35,000, far more than what a conventional borrower would pay.
- Rent-to-own furniture and appliance plans. Rent-to-own retail plans require you to make payments over a specified period, but interest rates are high and there are often additional fees. Renters can typically pay between two to five times the regular retail price by the time they own the item.
- Short-term instalment loans marketed to newcomers. Private lenders specifically target Canadian newcomers with personal loans, offering promises of fast approvals with little to no credit history. These products are sometimes framed as 'credit-building' tools but charge rates well above those of secured or traditional credit products.
- Unsecured credit cards. While offering slightly better rates than the options above, credit cards are high-interest products that typically start around 19.99% and go up from there.
The problem compounds because each of these products generates monthly payments that tighten the borrower’s debt-to-income ratio's headroom, making it harder to qualify for lower-cost alternatives even as their credit file begins to grow.
How to build credit without accumulating dangerous debt
The following steps can help you avoid taking on bad debt, as long as you follow one rule: use the lowest-risk product available to you at each stage, not the first one offered.
Step 1: Open a newcomer bank account. All of Canada's major banks offer newcomer banking packages that can be opened without proof of Canadian income or a credit file, often with the first year's fees waived. By opening this account as soon as you arrive, you begin to establish a banking relationship that can support secured credit applications.
Step 2: Obtain a secured credit card. A secured card requires a cash deposit — typically $200 to $500, depending on the issuer — as collateral, and payments are reported to Canada's credit bureaus. By using the card consistently and always paying in full to avoid interest, you can start building a credit score in Canada within three to six months at minimal cost.
Step 3: Use patience with instalment products. If a vehicle or large purchase is unavoidable, treat higher rate loans as a short-term bridge. Refinance to a better rate the moment your credit score is more established. The difference in total interest cost can be several thousand dollars.
Step 4: Track your debt-to-income ratio from month one. Strive to keep your total debt payments below 40% of your gross monthly income as a household threshold. Exceeding this limit early on can not only make life unaffordable, but it can impact your ability to borrow in the future.
Read more: Here are the 3 net worth milestones that change everything for Canadians (and what they say about you)
What to do now
The good news is that building credit in Canada doesn't have to involve taking on expensive debt. For many newcomers, the smartest approach is to start with a newcomer banking package and a secured credit card, while avoiding high-cost financing products that promise quick approvals. Try to keep your debt payments manageable, and refinance expensive loans once your credit history is established. This can help you save thousands of dollars and put you on a much stronger financial footing.
You May Also Like
- Focus on these 3 ‘magic numbers’ to become a millionaire — and only on these numbers. How do you stack up?
- Here are the 3 essential moves to make once you’ve saved $50,000
- Suze Orman recommends these 6 simple ways to avoid the stress of living paycheque to paycheque
- Your daily coffee habit isn't the problem. Prioritize these 4 critical investments instead and watch your net worth skyrocket
Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.
