By Ivy Chiu, Senior Director of Newcomer Segment, RBC Royal Bank
Newcomers to Canada may be surprised when they arrive to find out that some perceptions they have about the country don’t live up to what they expected. Freezing temperatures and snow for half the year, healthcare being completely free, and Canadian police exclusively atop horses are among a few of the stereotypes that can throw immigrants for a loop.
With 340,000 immigrants that settle in Canada yearly, the abundance of information given to newcomers could see some myths and misconceptions make their way through, including common myths about achieving financial health.
Migrating to a new country is a big step for the future, and learning to handle finances correctly, including learning the truth behind common misconceptions, is an important step towards a prosperous future in Canada.
Myth: The higher your income, the higher your credit score.
Fact: Your income will not affect your credit score as it is a measure of your ability to pay your bills in a timely manner. A credit score is built through financial transactions, such as the first time you take on a loan, set up utilities, or purchase a mobile plan—and it is built over time. The score is determined based on the evidence of how finances and repayment were managed and is influenced by whether monthly bills are paid in a timely manner.
Myth: The moment you’ve paid off your debt, it’s removed from your credit report.
Fact: Information on your credit report stays there for up to seven years. While becoming debt-free can improve your financial health, you have to maintain an active credit account in a responsible manner to be able to improve your credit score.
Myth: Ditching your credit cards will improve your score.
Fact: Your credit score is solely based on your ability to pay your debts. To have a good credit score you have to use credit and use it responsibly.
Myth: You and your spouse have the same credit score.
Fact: You do not share your credit history with anyone. If your score changes because of your financial habits, your spouse’s credit score will not be impacted; it will only affect their score if the debt is made under their name.
Myth: You’re 30. You’re too young to save for retirement.
Fact: The earlier you start saving, the better. With compound interest, an amount of time as small as five years of saving could make a huge difference when you retire.
Myth: You’re 50. You’re too old to start saving for retirement.
Fact: No matter your age, it is always a good idea to put some of your regular income towards retirement. Having anhy nest egg is better than nothing at all. You can speak to a financial advisor to determine what works best for your situation.
Myth: There are no saving or investing plans relevant for newcomers.
Fact: There is a variety of investing plans that newcomers can consider depending on their financial goals, such as Tax-Free Saving Accounts (TFSA) where investment earnings and withdrawals are tax-free. Once you have a regular income, Registered Retirement Saving Plans (RRSP) and Registered Education Savings Plan (RESP) can be explored.
Myth: You can’t qualify for a mortgage if you do not have at least two years of Canadian employment.
Fact: You do not have to meet the traditional two-year employment tenure to be considered for a mortgage. Some mortgage lenders, such as RBC, offer special programs for people who are new to Canada, including mortgage specialists that can help you make the right decisions based on your own unique circumstances.
Myth: You cannot qualify for a mortgage if you do not have a well-established credit history in Canada.
Fact: Even with a limited Canadian credit history, you may still qualify for a mortgage with larger banks, such as RBC, so long as other eligibility requirements are met.
Ivy Chiu is Senior Director of Newcomer Segment at RBC Royal Bank.