The Burn Your Mortgage Podcast: Building Credit as a Newcomer to Canada with Bruce Sellery

Full Transcript

Sean Cooper  
Hi, Bruce, how are you doing today?

Bruce Sellery  
Hello, Sean. I'm great. Thank you.

Bruce Sellery  
It's wonderful to have you on the podcast. I'm sure it's strange to have the shoe on the other foot. I'm sure you're used to interviewing plenty of people in your podcast there. So I thought I'd return the favor and have you on my podcast. I remember how nice you were when my book first came out. So I just wanted to return the favor there.

Bruce Sellery  
It was my pleasure. And I'm flattered to be asked.

Bruce Sellery  
Great. And I know this audio only. I'm not trying to say you have a face paid for the radio or anything like that. I'm sure you're dressed up to the nines here. Yeah, but I definitely love the enthusiasm and looking forward to a very energetic and interesting discussion on personal finance and real estate as well. 

Bruce Sellery  
Great. 

Sean Cooper  
Okay, perfect. So yes, I really love the topic that you suggested for this episode here. Newcomers new Canadians, because, yes, with Canada welcoming a record number of new Canadians over the coming years here, there are many adjustments that people face when they come to the country as well as barriers. So yes, the challenge of not having a credit history in Canada is a big topic. Because yes, like, if you want to eventually buy a property, or really do anything, you need some sort of credit history there.

Sean Cooper  
And so yeah, maybe you can talk a bit about some of the challenges that people face when coming to Canada, I think maybe it would be a bit easier for Americans there. But yeah, if you're coming from somewhere else in the world, whether you're just choosing to pursue better opportunities, maybe you're coming from Europe, or even you're like a refugee or something like that there. Yes, if you could talk about the credit challenge there. 

Bruce Sellery  
Every newcomer to this country has a different set of circumstances in terms of the money they are coming with or without in terms of the state of mind that they're in On arrival, in terms of their ability to bring data across the border, their ability to speak the language. And you know, we have new Canadians who are economic immigrants who speak perfect English, and their circumstances are quite different from a refugee who is here with the clothes off their back and not a word of English. So there is an enormous spectrum here, but I'll highlight, you know, some of the most critical issues. The first among them is money. 

Bruce Sellery  
Like if you arrive in this country, you've got very, very little money, how do you navigate the world around you? It is exceedingly difficult. And well, we'd like to think that we provide all sorts of immigrant support services, it's very expensive to live in this country. And it's not easy to get a job in five seconds, especially for those who have some sort of credentialing a field or a job in your field. The other thing that I think is worth pointing out is culture. And that is multifaceted. So for example, if you come from many countries in the world that are cash based, coming to Canada, which is virtually cashless, is a really difficult transition to make. 

Bruce Sellery  
There is also an element of trust that when you move to a new country, you don't know who the CRA is, you don't know when the phone rings, and they say they're from the CRA if they actually are or not. And you're trying to figure all of that out. And the last challenge that I would flag is your data. So when you come to this country, you are beginning again, building up your financial life, building up your financial reputation. And even if you come from the US, it may be that that information doesn't port, it doesn't cross borders very easily. You'd be surprised how little the credit bureaus that operate globally, how little information is shared from country to country. So there are a tremendous amount of challenges for newcomers to Canada to sort of set up their financial life.

Bruce Sellery  
Yes, thanks for addressing all those Bruce, because yes, if you're looking to build a life for yourself in Canada, you really need to be able to build a financial life for yourself, because that's really the building blocks to be successful later on in life. So yes, maybe you can talk a bit about the essentials of credit. Just give us a bit of a rundown for maybe some new Canadians who are listening to the podcast, or even Canadians who have been in the country for quite a while here because I mean, when I went to school, and I'm sure it's the same for you, Bruce, we didn't really learn about like financial literacy courses were on existence is better these days, but it's still not sure if there's a credit component there but unless you had parents that were really savvy, you did And you've kind of learned about that the hard way. So yeah, maybe you can just talk and educate people a bit about that.

Bruce Sellery  
I'll start with the number, the credit score, which is a number, it's from 300, to 900. And it's a number assigned to a person that indicates to lenders, your capacity to repay a loan. So it's not a commentary on your value as a human, it doesn't mean you're a good person or a bad person. But it's a way that lenders assess risk. And this data comes from lots and lots of different places. And we'll talk about where that data comes from, and what drives that credit score. But I think the most important thing for any listener to know is your credit score matters. And it matters in terms of your ability to borrow, it matters in terms of the price you pay to borrow. And it matters in terms of the apartment you are able to get, and the job you may be able to get. 

Bruce Sellery  
So on the job front, many employers now will ask you for your credit score. If you're handling money, a relevant piece of it is more relevant to more people . You know, you want to try and find a place to live in this country. And when a landlord has 20 applicants to choose from, and you know, 17 of those applicants have poor credit scores, and three have great credit scores, you're already out of the running, if you don't have a credit score at all, or if it is poor. So that's really, really relevant. And when it comes to borrowing, you know, you may think, Well, what do I need to borrow money for? We're going to talk about housing, that's one big thing. But what if you need a car to get to your job, what if you need a couch, there are certain things that you will need to have access to capital for. And if you have a poor credit score or a low credit score, your ability to get the very, very best priced loan from a bank is diminished, because you don't have enough evidence that you were able to repay that loan. 

Bruce Sellery  
So I cannot say enough about how important it is to understand what a credit score is, and why it matters to you, as an individual, whether you arrived from another country two weeks ago, or whether your family has been in this country for millennia. 

Sean Cooper  
Well, you've definitely hammered home the point first about how important your credit score is. So let's segue from that to maybe you can talk a bit about how you actually build a credit score if you basically have none. If you're starting from square one in Canada, what would you suggest for people I know they're secured credit cards and other methods to do that? I'd love to hear your thoughts on being a credit expert. 

Bruce Sellery  
So number one, you arrive in this country, you open a bank account, and the banks are pretty good at supporting people to take that step, it's fairly straightforward your foreign passport will do with another piece of government ID you open the bank account. And I also recommend that people apply for a credit card at that time. And the reason is having a credit card is so critical to building your credit history over time. Some institutions based on some circumstances will give you an unsecured card as in, they will be willing to, you know, loan that money until you pay it back when the payment is due. Others will not give you that privilege. And you'll need to apply for a secured card. 

Bruce Sellery  
How a secured card works is you literally give the institution say 500 bucks. And then over the course of time you can spend up to that amount. So it's your money. But that does enable you to build a credit score over the course of time. A credit score is made up of five variables, five, and so we think about the lender, like what do they want to know, the first thing a lender wants to know is do you do what you say you will do? And the way they measure this is your payment history. So you need to pay your credit card on time, every single time no matter what, some months, that's just the minimum payment. But it is at least the minimum payment on time every time. Otherwise, you're gonna get body checked and slammed on that credit score. 

Bruce Sellery  
And a lot of people, Sean, don't understand this. And I say, go read your terms of agreement for your card. And it says I promise to pay on time every time and people think oh, it's no big deal. I was a couple days late. Yeah, you know what, you broke your promise. So never break your promise. So payment history is number one. It is by far the biggest variable in this calculation. The second biggest variable is called utilization. So the question the lender is now asking is, if you're in a crisis, do you have wiggle room and the wiggle room they want is 70%. So what that means is that the utilization on your credit should be no more than 30%. 

Bruce Sellery  
So if you've got one credit card and it's got a $1,000 limit, you never want there to be more than 300 bucks on there. And I don't mean like when the bill comes, I mean at any point in time, because if you're, you know, like close to having that card maxed out, if you're in a crisis, you have zero wiggle room. And this is exceedingly difficult for people to do. It's exceedingly difficult for newcomers to do like you finally got a credit card. Oh my god, I'm so really bad. Credit card, and then you've got to buy whatever it is that you have to buy. When you get close to that limit, your utilization exceeds 30%. And your credit score is going to take a hit. 

Bruce Sellery  
I'll just go quickly through the other variables here, Sean. So the next one is how well do you exhibit responsible behavior over time? That's the question the lenders are like, how well do you exhibit responsible behavior over time, and this is your credit history. So what this means is, you need to keep the very first card that you ever get for the rest of your life. Even if you don't use it, you need to keep it because it matters that you've got a credit history with one particular institution that goes back in time. 

Bruce Sellery  
Number four, are there any significant issues in your past, this is the public records, it's worth about 10% of your score, this would be things like amounts that are in collections, it could be a bankruptcy, filing a consumer proposal, a debt consolidation, less relevant for a newcomer to Canada to be honest, because they haven't had much time to get into trouble. But for someone who's been here for longer, that's a real risk. 

Bruce Sellery  
And then the last one is inquiries. And the lender is asking, Are there any recent signs of trouble. And what they infer from a whole bunch of credit inquiries is, oh, this person is in trouble. Because last week, they went and applied for a card at this store, and this store, that bank, and this bank, if they're applying for so many cards all at once, they are in trouble. So when you think about how to build a score, you think about those five things, and endeavor to be amazing. At all five of those things.

Bruce Sellery  
Well, thanks so much for sharing your wealth on credit scores there, Bruce, it's definitely good for everyone just to hear a refresher, not just new Canadians there. And I'm just curious, you touched on this with your answer here. But what would you say are some of your top tips on how to improve your credit score, like if you want a triple A credit score, whatever you want to call it? And like the eight hundreds, what would you suggest that people can do beyond just making their payments on time?

Bruce Sellery  
Yeah, well, on the payments on time, I would automate your payment. So you are never, ever, ever late. And if you've got the ability financially, have that auto payment be for the balance. So some people can't do that, like they really have, they're watching every single penny, if they've got a big credit card bill one month, they're not going to pay it off in full. So I understand that, if you have the flexibility, I would set that auto payment to come up on the day it is due, and then you never have to think about it. 

Bruce Sellery  
Now, if you don't have that wiggle room, the automatic payment should be for the minimum every single month. Other things that you can do is go for some diversity in your credit. So you've got a credit card with a major bank or credit union, you've got a credit card with a store, you know, like a big national store, you may have a personal loan, you may also sign up for something called rent advantage, which has different ways to do it. But one is Borrowell, Borrowell company I'm sure you've heard of, they offered this thing called rent advantage. And what that does is it gives you a line item on your credit file to demonstrate that you pay your rent on time. And that will help improve your credit score. 

Bruce Sellery  
So that's critical, because one of the other parts of the algorithm is they like to see that you've got different things out there on credit. So those are some tips. I also, here's another one, look at your credit score every single month, and just be aware of what it is, it is more difficult for you to accidentally gain 50 pounds. If you get on the scale every single month. What happens when people have significant weight gain is they're not paying attention. And when people have credit scores that go wildly off the rails, in some cases, it's because they aren't paying attention. So if you get your credit score, sign up for whatever service it doesn't, it could be Borrowell it could be Credit Karma, it could be credit keeper could be coho could be whatever it is, but ensure that you are looking at that score every single month, and you understand why it moved up or why it moved down. Because that's critical for you to say, oh geez, it was this this month. That's why it moved in that direction. 

Sean Cooper  
Great analogy, Bruce. And certainly sight out of mind doesn't sound like the best policy with the credit score there. So yeah, thanks so much. And I'm just curious, since this is a Real estate and mortgage podcast if you're disabled to touch on the importance of having a good credit score, when it comes time to let's say you want to put down roots and call Canada, your home, and you're ready to buy that property, maybe you just talked about the importance of having a good credit score when it comes to actually getting a mortgage to make the process easier. And to get a more competitive mortgage rate as well.

Bruce Sellery  
Yeah, it is critical, and it can amount to 10s of 1000s of dollars over the course of time. Now, you know this much better than I do, I'm sure you've got clients who call with the exact same income, the exact same downpayment, one has a credit score of 800, another has a credit score of 600, the financing, they will be able to get based solely on that credit score will be markedly different, because one has demonstrated. They're an amazing risk for that lender, and the other one has some stuff in their past that has the lender concerned. And when a lender is concerned, it's not that they won't necessarily be able to get a mortgage with a credit score of 600, they may well, but they're not going to get the very, very, very best rate. 

Bruce Sellery  
And, you know, listen, if your rate is even a little bit higher than the very best rate, then you're going to pay a lot more not only every month, but every month for the term of that mortgage, and on and on and on. So it is really critical to keep an eye on this and improve it as you go such that when you go to renew because no one pays off very few people pay off a mortgage in one cycle, when you go to renew for the next five year term or three year term or whatever, you're going to be in a better situation.

Bruce Sellery  
Yes, so definitely having a good credit score literally pays off and helps save you money. As you said there, Bruce. So yes, I just wanted to ask you, so what if you are running into problems with your credit, whether it's like circumstances or you had some honest mistakes or whatnot and forgot to make some payments? Maybe you're away on vacation? Something like that? What would you suggest to people to get their credit score back in check?

Bruce Sellery  
Well, so it depends on the circumstance. But what I would say and this is gonna sound totally self-serving, so I apologize, I don't mean to call credit Canada, or call another non profit credit counselor. Because what we do is answer these types of questions all the time. So at the simplest end of the spectrum, they may say there's an error on my credit score, it's like wrong, what do I do, and our counselors will be able to direct you to the credit bureau, they can tell you do this, do that do this do that. At the other end of the spectrum is you're in a situation where you simply cannot get ahead the interest that you're paying on credit cards, has it been impossible for you to pay this down based on your monthly income and the monthly expenses. 

Bruce Sellery  
So a nonprofit credit counselor can help you do something called a debt consolidation program in which all of your debt comes into one payment credit Canada negotiates with a creditor on your behalf to get a lower interest rate. And you pay that off over the course of time. They also can make a referral to a licensed insolvency trustee to pursue the option of a consumer proposal, which you know, is a big step. But that may be what you need. So I am a big fan of people getting in touch with a nonprofit credit counselor, and finding out what your options are. Sometimes it's as simple as I should do a webinar on budgeting. Could someone please teach me how to budget? You didn't learn it in high school, Sean, as you mentioned, so now's the time to learn it. 

Bruce Sellery  
And listen, we have a huge focus this year on newcomers and I'm just going to tell you about one little thing that we've got, it is an eLearning Center for newcomers to Canada. So it is four modules that will teach you the very basics of credit, why it matters, how to improve your credit score, and what to do if you run into trouble. So if you go to credit canada.com/newcomers You're gonna get a link and the really cool part about this because there's lots of stuff you know, the banks have information on this, our Learning Center, we have no bias like we're not a bank, and it's available in eight different languages. So it's amazing yeah, for people to be able to engage in the quizzes and stuff in Farsi, Hindi, Spanish, simplified Chinese, Arabic, I haven't got the whole eight there but there's a list of them and we believe that will improve a newcomers ability to learn more because we're coming to them in their own language. 

Sean Cooper  
Yeah, the course sounds amazing. So I would definitely say if you are looking to learn more about credit and build a credit score just to make your life a lot easier in Canada, definitely check out the course because isn't it free as well?

Bruce Sellery  
It is 100% free. We got a bunch of sponsors and they have enabled us to offer this program for free. So easy financial achievement, Canada Bankers Association indeed, Canada, a lot of people came together to make this happen. 

Sean Cooper  
Yeah, so even if you're not a newcomer to Canada, I would encourage you to check it out. Because it sounds like you'll learn a ton from credit, and it will just help make your financial life and your real life a lot easier. Yeah. So thank you so much for the service that you provide there. And yes, that's everything I want to discuss today. So thank you so much for being on the podcast. Bruce, it was a pleasure to have you and hopefully you didn't mind being in the other chair for once.

Bruce Sellery  
I kinda loved it. I actually like when people ask me questions, I should do this more often. 

Sean Cooper  
Sounds good. I'll definitely try to have you back before Episode 200.

Bruce Sellery  
Excellent. I look forward to it, Sean.

Bruce Sellery  
Okay, thanks. Have a great day. You too.

Sean Cooper  

Thanks for listening to another episode of the Burn Your Mortgage podcast. Besides being a podcast host, I’m also an independent mortgage broker. If you or anyone you know, family, friends, co workers or neighbors could ever use any unbiased mortgage advice or a second opinion, feel free to reach out. Email me at sean@burnyourmortgage.ca or call or text me at 647-867-3711 for a free mortgage consultation.

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