CIBC Hopes to Win Over New Canadians with Small-Balance Credit Cards

Photo by imuttoo via flickr by CC 2.0-sa (compressed)

Getting approved for a credit card can be tough, especially if you’re a newcomer to Canada. With a lack of credit history and steady employment in Canada, getting approved for a traditional credit card can be an uphill battle.

CIBC is lending new Canadians a helping hand by offering small-balance credit cards. The big bank is hoping to improve its bottom line and win over more customers in the heated credit card marketplace. With over 257,000 new Canadians coming into the country in 2012, this is a great opportunity for CIBC to get a leg up on the competition.

Winning Over Newcomers

After posting a quarterly profit of $921 million (up from $878 million last year), CIBC announced plans of growing profits by winning over new Canadians that come into this country each year. Canada’s fifth largest bank sees good long-term growth by attracting new Canadians to its small-balance credit card offering.

“A lot of folks coming in are of solid credit standard,” says David Williamson, head of retail and business banking at CIBC. “They’re coming in to work here or to invest here, so we’re looking to more than just participate in that space.”

New Canadians often have trouble obtaining a credit card from the big banks due to a lack of Canadian credit history, a major factor in assessing whether they can repay debt. After nearly $10 billion in writedowns due to exposure to the U.S. subprime mortgage market, CIBC is treading softly. It’s reducing its risk by only approving unsecured credit cards with small balances.

“It’s a very small balance but allows new Canadians to build a credit history,” says Williamson. “Obviously, the experience is a winning proposition, that’s why you see us and others doing it.”

CIBC isn’t the only big bank to jump on the new Canadian bandwagon. While CIBC has just started offering new Canadians credit cards, RBC has been in the game for quite some time. Royal Bank approves newcomers for car loans, credit cards, and mortgages. Meanwhile, TD Bank offers credit cards, no-fee chequing accounts, and no-fee transfers. The big banks are hoping to win banking customers for life. If a new Canadian signs up for a credit card, it can lead to other products like car loans, lines of credit, and mortgages down the line.

Secured Credit Cards

Before the big banks started offering small-balance credit cards, the only option for many new Canadians were secured credit cards. While you could get added as an authorized user, finding someone willing to cosign is difficult, especially if you don’t know anyone in this country.

Secured credit cards are ideal for new Canadians, those with little to no credit history, and those looking to rebuild their credit history after bankruptcy. If you apply for a traditional credit card with the big banks, your application will more than likely be denied. That’s because you’re seen as a high risk due to your low credit score, lack of credit, or residency history. You may be able to restore or build credit with a secured card.

Before you sign up for a secured credit card, there a few things you need to be aware of. You’ll need to offer your credit card issuer some money up front. Secured cards generally require a security deposit and may have additional fees associated with the account. It’s important to use your secured credit card responsibly. By paying your balance on time and in full each month, your credit history (and score) will improve over time. Missing payments will negatively affect your credit score! If you’re not responsible, it’s best to skip credit cards altogether.

The Bottom Line

Targeting new Canadians is a win-win situation for newcomers and the big banks alike. Newcomers with a lack of Canadian credit history are able to obtain a credit card hassle-free. This lets them begin building a credit history until one day when they’d like to apply for further credit like a mortgage. Meanwhile, the big banks are only offering small balance credit cards, which reduce default risk. New Canadians and the big banks both come out ahead with these new credit card offerings.