Newcomers still have hurdles to overcome before getting bank accounts, credit cards

According to experts, the path to settlement in Canada can be fraught with obstacles.David Lipnowski/CP

Nothing is more fundamental to establishing a new life in a new country than opening a bank account and getting a credit card. But for recent immigrants to Canada, there are myriad barriers to accessing its financial system, from misconceptions about how credit markets work to unfamiliarity with digital banking practices to finding a lodging.

The country is on track to welcome a record number of new Canadians over the next three years, which should boost population growth after a pandemic crisis.

The federal government said it expects to welcome nearly 432,000 new permanent residents this year, more than 447,000 in 2023 and 451,000 in 2024. Canada has also approved more than 263,000 Ukrainians for emergency travel to Canada this year, of which approximately 65,000 have arrived in the country to date.

But the journey to settle in Canada may have some bumps along the way, experts said. The first step to establishing yourself financially in the country is to open a bank account, said Michael Zienchuk, director of the wealth strategies group at the Ukrainian Credit Union.

Newcomers need two pieces of government-issued identification, such as a Canadian driver’s license, social insurance number or provincial health card. Three forms from Immigration, Refugees and Citizenship Canada also count as valid identification. Those with only one piece of government ID can also present a debit or credit card with their name and signature, or a valid foreign passport, among other options.

The UCU accepts foreign passports and temporary visas to open bank accounts for Ukrainians who came to Canada because of the war, Zienchuk said. It has set up a program to provide displaced Ukrainians with free bank accounts, debit and credit cards.

Although it is possible to open a bank account without a SIN, the number is required to access an account that earns interest on a checking or savings balance.

Enoch Omololu, the Winnipeg-based founder of personal finance website Savvy New Canadians, said newcomers wanting to get a head start can open a bank account in their home country, but it’s usually preliminary configurations. With the exception of digital banks, where the entire account setup process is online, banks and credit unions tend to require an in-person visit to verify identity.

Mr. Omololu recommended that newcomers think about their needs and how they plan to use their bank account before committing to a bank, credit union or digital bank. Many digital banks offer free checking accounts and the ability to earn interest on a checking account balance, which can be beneficial, he said, but users need to be comfortable with the sharing of their identification on the Internet and banking operations exclusively online.

Those who want help in person or who aren’t digitally savvy may be better served by banks or credit unions, he said. Immigrants who expect to send money frequently to family abroad may also prefer a traditional bank or credit union, as online platforms for international money transfers are not intuitive to use. .

But banks and credit unions charge monthly fees ranging from less than $5 to more than $30 depending on account type, or transaction fees for ATM withdrawals or wire transfers, so he encouraged newcomers to compare account fee rates. Also, be sure to compare the interest rates offered by financial institutions for savings accounts, especially at a time when they have the opportunity to take advantage of a rising rate environment.

Newcomers will also need to establish their credit score and background, Zienchuk said, as their credit history from another country will not be transferred.

Mr. Omololu advises newcomers to get a credit card quickly, pay their bills on time and limit their credit limit to a maximum of 35%, although 30% is preferable.

A mix of credit types also helps newcomers establish their score faster. If someone is buying a car and has the money to buy it outright, Mr Omololu said choosing to finance it instead and pay it off quickly to limit interest payments can help them with their score.” because it’s a totally different type of credit” than credit card purchases.

He said newcomers from countries where the credit system is very different from Canada’s might worry that access to credit products could negatively affect their score. “When they arrive in Canada, they say to themselves: ‘I don’t want to go into debt, it affects my credit rating.’ The thought process makes sense, but the way it works is different. To establish credit, you need credit products.

A lack of credit history can be the biggest hurdle for newcomers looking to get a mortgage and buy a home, said Joe Bladek, a Barrie, Ont.-based mortgage broker who frequently works with immigration consultants and newcomers.

However, many lenders offer new immigrants other ways to prove their creditworthiness. Mr Bladek said he asks such customers if they can provide a letter from their current landlord saying they have always paid their rent on time, or 12 months of bank statements to prove they are paying their bills. Some lenders accept an international credit bureau file, but “everything is on a case-by-case basis”.

It can be difficult for very newcomers to get a mortgage, Bladek said, because most lenders want to see a minimum of three months of work history.

He noted that a person’s status in Canada will influence how much they have to pay for a deposit. Permanent residents can buy a home with a 5% down payment, provided they meet employment and credit requirements. International students or newcomers with a work permit must pay a deposit of at least 10%.

Regardless of their immigration status, Canadian residents must file a tax return each year, said Jamie Golombek, managing director and head of tax and estate planning at CIBC Private Wealth Management.

Filing a return ensures that newcomers are able to access government programs they would benefit from, such as the Canada Child Benefit or the GST/HST credit. However, Golombek noted that people can apply for these programs directly upon arrival, rather than waiting. file their first return.

Many new Canadians may not realize that they are required to report their worldwide income and not just what they earned in Canada during the tax year, he said. This includes any investment or business in their former country. However, if they paid taxes in another country, they can claim foreign taxes on their Canadian return.

The Canada Revenue Agency also requires residents to disclose any foreign assets worth more than $100,000 using the T1135 tax form. Failure to report carries a penalty of $25 per day, up to a maximum of 100 days, although individuals do not have to complete this form for their first tax year in the country.

“Even if you earn no income [abroad] you have to report the existence of this property,” he said.

Mr. Golombek said those assets could include equity investments, a bank account or overseas rental properties, with their original cost valued in Canadian dollars, but do not include personal property such as a house in another country that will be used for holidays.

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