What to Know About Your First Credit Card

TORONTO, ON / ACCESSWIRE / September 12, 2024 / When applying for your first credit card in Canada, it is important to do your research on how credit cards work. Many people think they know everything there is to know about credit cards--and then are surprised by the fees.

Many first-time credit cardholders are coming from experience with debit cards-but credit cards are different. When you use a debit card, you pay for your purchase right away, in full, with your own money. With a credit card, you're borrowing money to make your purchase. Here are some other things to think about when you apply for a credit card in Canada.

Credit Limits

Your credit limit is the amount you can charge on your credit card. If your credit limit is $1000, you can make a purchase up to $1000. Staying within your limit is crucial. This is where spending responsibly with your card and making all payments on time is vital.

Building Credit Score

A good credit score makes securing a large loan, purchasing a vehicle or house, and applying for a rental much easier. Using your credit card responsibly helps you establish your credit score. Staying under your limit, making more than the minimum payments, and making those payments on time all help your credit score. Charging nothing in order to keep a zero balance may seem like it makes sense-but it doesn't show that you're capable of making regular payments on time.

Credit utilization is also important. Your credit utilization ratio (CUR; the percentage of available credit you use) can affect your credit score. If it gets too high, it can sink your credit store. If your credit limit is $5000, and you've used $4000 of that limit, you're CUR is high, and that's not good. This is why it's best to not go over 30-40% of your available credit limit.

Managing Payments

To avoid interest fees, pay off your balance in full each month. If that's not possible, always make at least the minimum payment due, more if you can. Keep in mind, if you continuously use your card and pay only the minimum balance owing each month, you will end up paying a lot more in interest over time.

It's also important to make your payments on time to avoid late fees. Responsbile credit card users sign up for automatic payments, so they never forget to pay the minimum.

Fees and Interest Rates

Think of interest as a fee you pay for borrowing money to buy something. If you pay the amount owing in full by payment day, you don't pay any interest. But if you don't pay your balance in full, interest accrues. This can add significantly to the actual cost you pay for items purchased on your credit card.

Other fees you should understand include:

• Annual fees: The yearly cost to have that card. Not all credit cards have annual fees, but if you find the right card, you can more than earn back that fee through rewards.

• Late payment fees: These are charged if you don't make your minimum payment by the due date.

• Foreign transaction fees: These are fees the issuer charges for processing transactions in a currency different from your currency. They can also be charged for making purchases from foreign merchants, even if the cost is in your home currency. Some cards don't charge for these transactions and some do. If you shop abroad frequently, finding a card without these fees can help significantly.

Avoid using your credit card to take out cash at an ATM or transferring funds to someone online, because the interest rate for these types of transactions is high.

Credit Card Security

Protect your credit card information at all costs. Don't tell anyone your card number, PIN, password, or CVV, and make sure to use secure websites if you're purchasing online. Never lend out your card. You're on the hook for everything they purchase with it.

If your card has been lost or stolen, phone your financial institution immediately to open a report. Learn ahead of time if you have the option of temporarily freezing or locking your card from its app and do that right away if needed.

Always take a few minutes to check the recent purchases on your account. You know what you've used your card for, and if there's anything you don't recognize, call your financial institution.

Now that you're armed with the basics on new credit cards, you can choose the best card for you and use it responsibly-helping to establish your credit and build your financial future.

Contact

Sonakshi Murze
Manager
sonakshi.murze@iquanti.com

SOURCE: iQuanti