Building credit is something every Canadian should start from 18 or 19 years old, depending on the province. However, it’s never too late to start.
One of the easiest ways to build credit is through the credit card system. Most people use their credit cards to cover common expenses and pay off the balance when it is due. It seems straightforward, but there are a few tips and tricks to working the Canadian credit card system.
Credit is essentially a financial history for institutions to evaluate and determine their financial risk. To find out how it works, check out the guide below.
1. You Need a Bank Account
A bank account is a way for credit institutions to evaluate your financial stability. They can see things like your income history and spending habits. To qualify for the best credit cards, you need more than enough money to cover the cost of living.
2. You Should Open a Savings Account
It’s not necessary to have a savings account, but it also helps demonstrate financial savvy. Financially stable Canadians are more likely to qualify for the best credit cards.
A savings account shows credit institutions that your spending habits are wise and mindful. Make sure to consult a professional banker about which type of account is best for your financial situation.
3. Consider a Secured Card
Even with no credit or bad credit, you can still get financial help when you need it. If your applications for unsecured credit cards are denied, try a secured credit card.
Secured credit cards require a financial deposit as a form of collateral for the credit. These credit lines usually start small, but consistent payments demonstrate good faith. After a while, it’s common for these credit lines to be extended.
4. Pay Off the Balance
Carrying a balance that is a small percentage of your credit line will still help build credit, but it’s not advised because it makes monthly payments higher. A higher balance means higher interest charges. It’s best to pay off the balance in full each month.
Of course, never forget to pay your credit card bill on time. Payment history is a huge part of how your credit score is calculated. Additionally, you may incur late fees.
5. Beware of Cancellation
Canceling a credit card seems straightforward, but it can generate some undesirable effects. For example, canceling a card can decrease your total credit limit, driving up your credit utilization, and hurting your credit score.
However, some people want to cancel a credit card to limit their potential for fraud. The more credit lines you have open, the more likely it is for someone to hack in and exploit them. Some basic security knowledge can help mitigate this risk.
Getting a Canadian Credit Card
A Canadian credit card can be an asset if used the right way. It only requires a little bit of diligence to build your credit. Make sure to keep your credit utilization down, pay the bill on time, and pay off the balance each month.
For more useful financial advice, make sure to check out our page.