What you need to know about getting your first credit card
Are you ready for your first credit card? A credit card can be a great financial tool, but if used irresponsibly, credit cards can shackle you with excessive debt loads and unmanageable payments.
When you’re thinking about applying for your first credit card, it’s important to understand how credit cards work, the benefits and challenges, and whether you’ll qualify. Here’s what you need to know.
How to qualify for a credit card
A credit card allows you to make purchases today and pay for them in the future. However, credit card companies want to ensure their customers will make the payments on the cards. In order to qualify for a credit card, you’ll need to meet some basic eligibility requirements:
- Minimum age of majority of 18 or 19, depending on your home province
- Be a permanent resident or citizen of Canada
- If you’re applying for an unsecured credit card you can’t have an undischarged bankruptcy.
- An acceptable credit score
- A social insurance number
Why your credit score matters
Your credit score is a number that represents the risk to a lender when you borrow money, and it matters because it impacts the likelihood that your credit card application gets approved. If your credit score is below the bank or lender’s required score, they could decline your application. Some companies might offer a secured credit card option for low-scoring customers.
Simply put, a higher credit score means you’re generally seen as a lower risk to lenders.
Choosing the right credit card
There is a wide variety of credit card categories for Canadians today, with different types of rewards, perks, and fee structures, including:
- No annual fee credit cards
- Cash back credit cards
- Loyalty points
- Secured credit cards
- Unsecured credit cards
- Low-interest credit cards
- Elite credit cards
To choose the right credit card, consider what you want to use it for, as well as your financial situation.
No-fee credit cards
A no-fee credit card as a good basic card for first-time credit card applicants who simply want to help build or improve their credit history, or don’t spend a ton on their card to justify annual fees.
Cash back credit cards
If you use a credit card for most of their day-to-day spending, a card with cash back rewards might be for you. These cards can help you earn cash back rewards in specific spending categories, like grocery stores, travel, or gas stations.
Secured credit cards
If you’re trying to establish credit for the first time or re-establish your credit score after a discharged bankruptcy, consider a secured credit card. A secured credit card requires you to offer “security” or something of value to the card company, such as a guaranteed investment certificate (GIC) they can cash in in the event you default on your credit card payments. An unsecured credit card, however, does not require security.
Low-interest card cards
If you plan to use your credit card to make a purchase that you won’t pay off each month, you’ll carry a balance on your credit card. You can do this as long as you make the minimum required monthly payment. In this case, a low-interest rate credit card could be a good choice.
Elite credit cards
Elite credit cards usually come with an annual fee and require a certain income level to qualify, but also offer enhanced rewards and perks. For example, our Visa Infinite Card is considered an elite credit card, with high cash back rewards and comprehensive travel benefits.
Some travel benefits include access to exclusive airport travel lounges, special events or discounts, and additional insurance coverage for out-of-country travel, theft of items purchased on the card, and rental car insurance.
How to apply for a credit card
Every card has its own application process, requiring you to apply for the credit card online, in person, or over the phone. Once you know which card you want to apply for, make sure you have this information handy:
- Full name and address
- Social insurance number
- Income information
How long does it take to get a credit card?
Depending on your credit history, income, and if you already have a relationship with the financial institution or credit card company issuing the card, your approval could be immediate.
If your credit card application needs to get reviewed and approved (this is called underwriting) by an individual instead of through a computer system, it could take a few days to a week to get approval.
What to do if your application is rejected
If your credit card application is declined, don’t panic. Instead, look carefully at some of the common reasons banks reject credit card applications, so you can see what to work on:
- Poor credit score
- Bad track record of repaying loans or other bills
- Low income/too much other debt
- Short employment history
Take the opportunity to strengthen your financial situation and increase the likelihood of approval the next time you apply. You can order your credit report for free to verify your information, then start building or improving your credit score. Look for ways to boost your income and/or lower other debt. Avoid re-applying until some time has passed, and you have a stronger employment history.
Tips for using your credit card
Keep an eye on your credit card usage to ensure the balance doesn’t creep up over your card limit as this can also impact your credit and result in additional charges. Remember to make your minimum payment on time and in full. To avoid interest charges, avoid carrying a balance on your card -- pay the total off each month.
Credit cards are convenient. Used wisely, a credit card can help you manage your money, build your credit, and even save money through rewards points or cashback.
It’s a privilege to get a credit card, so make sure you use it responsibly or you could end up losing access to it and damaging your credit score.
