Prepaid or Contract: What is the best type of phone plan for newcomers to Canada?

This article was produced in partnership with HSBC Canada. Together we thrive.

One of the first things you need when you arrive in Canada is a cell phone (or, for all you European readers, a mobile!).

In the era of Google Maps, Amazon, Uber, and all the other millions of services you can get at the touch of a button, smartphones have become an integral part of our daily lives. Think about it: How many times have you picked up your phone since you woke up this morning? 

When it comes to devices that we spend so much time with every day, you want to be sure you’re ready to select the best option you can get in Canada.

In fact, you can even research your options before you arrive.

In this article, we review one of the major questions you’ll have to answer when choosing a Canadian phone plan: do you want a prepaid plan or a monthly contract? We’re going to explain the difference between the two and help you understand which one is a better fit for your needs.

Jump to:

• The basics: What are prepaid and contract phone plans?
• Credit checks for phone plans in Canada
• How to build your credit history in Canada

Once you understand the difference between prepaid and contract plans, be sure to check out our guide comparing Canada’s major phone providers.

First, let’s go over the terminology, in case it’s different from your home country/country of origin:

1. Prepaid plan (also called “pay-as-you-go”): This is a type of cell phone plan where you pay for your services in advance. You purchase a finite number of calling minutes, texts, and data and if you use it all up, you will no longer be able to use those services, unless you pay more to refill your account.
2. Monthly contract plan (also called “postpaid”): This is a type of cell phone plan where you pay for your services after you use them, traditionally on a set day every month. A major difference is that monthly plans usually won’t cut you off if you exceed your quota for calls, texts, or data. Instead, your phone provider will just charge you for the overage, adding the cost onto your next monthly bill.

Overage charges on monthly plans can be expensive, especially for data. Many Canadian phone providers will charge you an overage fee of $10 per 100 MB of data you use after exceeding your monthly limit, so exert caution. If you’re one of those people who will, with reckless abandon, stream Beyonce’s new music video on your phone regardless of your data limit… watch out! (Though, we totally get it.)

There are a few advantages and disadvantages to both. 

Many providers also offer loyalty benefits and extras to customers who sign up for a phone contract. For example, Fido offers a rewards program for customers, giving them perks like extra data and weekly deals with other companies. 

For simplicity and ease, many phone customers opt to use automated payments for their mobile phone bills, or to pay using online banking. To do this, you’ll need a bank account with a bank you can trust. HSBC Canada offers their Newcomers Program which is specifically designed with newcomers in mind. Check out the HSBC Newcomers Program to learn about how you could earn up to $700* by signing up!

One consideration when choosing between a prepaid and contract plan is whether or not you can get a positive credit check. A credit check is an evaluation of your financial capabilities in Canada. Often this is required for services that are billed on a monthly basis, as businesses want to ensure their customers will be able to make their payments each month. 

If you are new to Canada, it may be challenging to get a positive credit check because you are unlikely to have a Canadian credit history. In this case, you may want to opt for a prepaid cell phone plan. Plus, if you take the right steps, it won’t take you too long to build your credit history in Canada.

Prepaid cell phone plans do not require a credit check, but many monthly contract plans do require a credit check. 

Are there phone providers who may approve a credit check for newcomers to get a monthly contract?

Yes. To answer this question, we spoke with agents from Virgin, Fido, and Koodo. According to our research, these companies offer the most competitive monthly contract phone plans.

Each of Fido, Virgin, and Koodo encouraged newcomers to reach out to their customer service agents directly to complete a credit check. Each company was eager to process these credit checks from newcomers in order to see if they could be approved for a new monthly phone contract, with no guarantee that a newcomer will receive a positive credit check. 

But! The companies we spoke with encouraged newcomers to complete the credit check to be sure. One agent went as far as to tell us that the approval process for newcomers was slightly less strict than for others, “for immigrants, it is very friendly.” (The same could be said for Canada as a whole, but we’ll stick to cell phones for now.)

Some of these companies have relaxed requirements for new immigrants. A representative from Koodo mentioned to us that in select locations Koodo offers the New Immigrant Program, which allows newcomers to subscribe to certain monthly contract phone plans with limited documentation and credit history. 

Moreover, international students studying in certain provinces will be able to use their study permit and foreign identification to complete a credit check with some phone providers. It depends largely on the location of studies, as providers’ options vary from province to province.

In the end, the only way to find out for sure if you’ll be approved for a contract is to get in touch with the company and complete the credit check. 

Be sure to have your documents ready: Each company may ask for slightly different documentation, but you will require some identification. Often a credit card and/or a Canadian bank account will fulfil some of these requirements. 

• For more information, jump to:
  How to build your credit history in Canada

Prepaid phone plans without a credit check

All major mobile phone providers offer prepaid plans. However, the most competitive prepaid plans are with Public Mobile, Lucky Mobile, and Chatr Mobile. These three companies only offer prepaid plans, with no monthly contract options.

Another consideration is that all prepaid plans are, by default, bring your own device (BYO) plans. This means that you need to have an unlocked phone already in order to sign up for a plan.

You have the option to purchase a phone through the provider, but you will have to pay the entire cost up front. For this reason, if you want to purchase an expensive phone model and pay it off over a longer term through a phone contract, then prepaid plans may not be a good option for you. 

We know that you probably want the latest iPhone on the market, so that you can take high-quality pictures of your first poutine, but unless you’ve got some serious cash, this might not be an option right at the beginning. In this case, you’ll want to begin building your credit history in Canada so that you’ll be able to get approved for a new phone and a monthly contract as soon as possible.

If you’re new to Canada, you should begin building your credit history as soon as possible. Having a good credit score with a solid credit history will help you do things far beyond just getting a monthly contract for your phone. You’ll need a credit history if you want to get a car loan, rent an apartment, or get a mortgage! 

Thankfully, there are a few simple steps you can take when you arrive in Canada in order to start building your credit history.

Before we go through our pro-tips for jump starting your Canadian credit history, we are excited to let you know that we’ve partnered up with HSBC Canada, one of Canada’s top-ranked banks, to help newcomers get started with their finances and banking.

1. Get a bank account: You’ll need a bank account to manage your Canadian finances, including your new cell phone! Paying your cell phone bill (and many other bills!) can be done quickly and easily through pre-authorized payments, but you’ll need a bank account to get your pre-authorized payments up-and-running. One of the first things you should do as a newcomer to Canada is open a Canadian account. Fortunately, we’ve got you covered: find out which Canadian banks have special offers for newcomers.
2. Get a credit card (not prepaid): A credit card is the most accessible way to start building your credit history. Many Canadian banks offer newcomer banking programs that allow you to get a credit card when you open an account with the bank. Newcomers on temporary status, such as a work or study permit, may find it more difficult than new permanent residents to be approved for a credit card. Please note: the ideal credit card should not be prepaid, as prepaid (or secured) credit cards do not have a significant impact on your credit history.
   And be careful not to overspend. Missing your credit card payments isn’t good. Other top tips include always keeping your balance to under 70% of your available credit and avoiding taking cash advances domestically. We understand that you think it would be nice to own a life-size cardboard cutout of Justin Trudeau that you found on Amazon, but do you really need it?
3. Make your monthly credit card payments on time: Now that you have your credit card, you have to make your monthly payments. This is crucial, especially when you’re a recent arrival. Having a history of late payments will make your life difficult when it comes time to complete a credit check in the future.
4. Pay your full amount: It’s better to pay off the full amount on your credit card each month. This demonstrates that you are a responsible spender who can be trusted to pay back your credit. It may not always be possible to pay back the full amount, but be sure to at least make your minimum payment, otherwise you’ll be jeopardizing your credit score.

After a few months of responsibly building your credit history, you’ll be able to begin using that credit history. Purchasing a new phone on a monthly contract will be simple once you can secure a positive credit check!

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