Common Canadian finance myths debunked
Image Credit: Michael Longmire via Unsplash
By Ivy Chiu
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 credit, personal finance and mortgages.
Handling your finances correctly, including learning the truth behind common misconceptions, is an important step in securing yourself for a new future in Canada.
You heard: Income affects credit score.
Truth: Your income will not affect your credit score as it is a measure of your ability to pay your bills in a timely manner.
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.
You heard: The moment you’ve paid off your debt, it’s removed from your credit report.
Truth: 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.
You heard: Ditching your credit cards will improve your score.
Truth: 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.
You heard: You’re too young to save for retirement at 30.
Truth: The earlier you start saving, the better. With compound interest, what you save in as short a period as five years could make a huge difference when you retire.
You heard: Saving for retirement at 50 is way too late.
Truth: No matter your age, it is always a good idea to put some of your regular income towards retirement.
Having any nest egg is better than nothing at all. You can speak to a financial advisor to determine what works best for your situation.
You heard: There are no saving or investing plans relevant for newcomers.
Truth: 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.
You heard: You have to work for two years in Canada to qualify for a mortgage
Truth: Some places, such as RBC, offer special programs for people who are new to Canada, including mortgage specialists who can help you make the right decisions based on your own unique circumstances.
You heard: You must have a well-established credit history to qualify for a mortgage.
Truth: Even with a limited Canadian credit history, you may still qualify for a mortgage with larger banks such as RBC so long as the other eligibility requirements are met.
Ivy Chiu is the Senior Director of Newcomer Segment at RBC Royal Bank.