Credit cards can be a great way to build your credit history and score, but it’s important to understand them before you apply. Here are six things you should know before applying for your first credit card in Canada.
Understand the Benefits and Rewards
There are lots of benefits and reward programs out there, and some cards offer benefits that can be used across multiple cards. Deciding which credit card is best for your needs is a matter of deciding which benefits and rewards you value most. If you carry a balance from month to month, look for a card with a low-interest rate. If travel is your priority, consider one that offers travel insurance or discounts on hotels and airline tickets.
Remember that there’s no one perfect credit card – different cards are designed for different types of people and spending habits. Some offer rewards, some have low-interest rates and some let you earn points towards other goodies.
Know Your Credit Score
Your credit score can help you get approved for a card with a lower interest rate, so it’s important to know where your credit stands before applying for a new card. Many times, people who have low scores may be denied a card because lenders consider their risk too high when offering them an account.
However, if you have a high credit score, it will be easier for you to get approved for cards with lower interest rates and this can save you money over time. You can check your credit scores through Canada’s two major consumer reporting agencies: Equifax and TransUnion.
Understand the Annual Fees of Your Card
Also, it’s important to note that many cards charge an annual fee. This is money that you will have to pay just for having the card and this fee may be worth it if the benefits of the card outweigh the cost. However, sometimes these fees can be high and it may not be worth being charged for a card that you don’t use. Before applying for a new card, take the time to understand what fees come with that account so you can determine whether or not it’s something you’ll actually use.
Be Sure You Can Afford Your Monthly Payments
Before applying for a new credit card in Canada, it’s important to understand the minimum monthly payment that you’ll be required to make. When you accept a new account, most cards will require that you pay at least 2% of your current balance every month. This means that if your balance is $3,000, you’ll have to make a monthly payment of at least $60 per month – and this will be your minimum.
So before applying for a new card, be sure to understand exactly how much the interest rate is and what that means for you if you don’t pay off your balance each month.
Only Apply for Cards You Will Use
It’s important to only apply for cards when you know that you can use them without pressure. This is because applying for a new credit card can lower your credit score, and it may take some time before the effects clear up and improve your standing. So if you’re not ready to make a purchase soon, don’t apply for a new card until you are.
For example, if you apply for a credit card with an introductory 0% interest rate, this will lower your credit score because it tells lenders that you are looking for new credit. If you do not use this newly-applied-for account within the first few months, your score will likely drop further.
However, if you carry a balance every month on a card with a high-interest rate, a new card will be approved with a lower one and implemented right away so you don’t have the opportunity to carry the balance from month to month. This will improve your credit score because it tells lenders that you are making an effort to reduce your debt load.
Remember to Keep Track of Your Expenses
Make sure you understand the benefits and fees associated with your new card, but it’s also important to keep track of your spending. Keeping good records will help you identify problems early so you can do something about them before they become too big to handle. If your account isn’t working for you, consider closing it and moving on to a better account.
Also, if you do not understand how to take advantage of all the benefits that come with your card, call customer service. They should be available 24/7 and can provide you with guidance on anything you’re uncertain about regarding your account.
So before applying for a new credit card, take the time to understand how it will affect your credit, what fees you’ll have to pay, and whether or not it’s something you can actually use. If you keep track of your accounts and expenses, finding the right one will be easier than ever.
Published by HOLR Magazine