New To Canada? Be Wallet Savvy from Your First Days
Apply for a Credit Card that is Suitable for You!
At some point in time Canadians may need to borrow money from the bank to obtain a loan for the purchase of a home or a car. Even leasing a vehicle requires one to have a credit history in good standing. For newcomers it is not the first priority of course; however it is important to know that your credit history is one of the factors that financial institutions consider when you apply for a credit card, loan, line of credit, or mortgage. Essentially, credit history is information on your ability to pay back money you have borrowed from a bank. In order for the bank to trust you, you must have good credit history. Maintaining a good credit history will allow financial institutions and credit issuers to assess your ability to repay back the money borrowed on time. It is important to note that missed or late payments will result in bad credit history, making it difficult to borrow money in the future.
Now to a real double-edged sword – in order to build your credit history you need to have some credit so that you can show credit issuers that you are capable of paying the credit back. But how do you get credit to begin with, when credit issuers do not have enough information about your spending habits and your capability to repay your debts? It is a challenge for newcomers to borrow funds as Canadian banks do not have enough information to “trust” the newcomer. As a result, Wallet Savvy has created a database of credit cards that are specifically designed for newcomers with no previous credit history records.
By obtaining a credit card, newcomers begin to build their credit history so that credit issuers know that you are a financially responsible individual. As a matter of fact, simply paying your monthly balance in full will demonstrate your ability to repay your debt. Doing so before the payment deadline is very important, as late payments could lead to high interest rate charges and consequently jeopardize your credit history. If you are in a situation where you have no other choice and you have to borrow money using your credit card, please visit our “low interest cards” section to learn more and apply for a card with the best interest rate so that you can pay less interest and get rid of your debt faster.
As a newcomer, you should know that interest rates on credit cards are generally much higher than those on a line of credit or a loan. For example, you can potentially apply for a line of credit with the rate of prime + 2% (let us round that number to 5%-6%), whereas the majority of credit cards charge over 20% interest, which is a significant difference in interest payments. Remember, interest is calculated monthly whereas the Annual Percentage Rate (APR) is recalculated into the Effective Annual Rate (EAR) to calculate your monthly compound interest. As a result, your credit card debt could be very costly if you don’t repay it as soon as possible, or if you don’t transfer your balance to a lower interest card. Consequently, paying your monthly balance in full is highly recommended when you use a credit card.
Numerous financial institutions in Canada offer credit cards for newcomers with different features and requirements. As you may have already guessed, the banks and credit card issuers won’t bear the risk to issue a credit card to an individual with no credit history; as a result, the credit issuers will request a secured deposit which is usually equal to the value of the credit card limit. This way you would be able to obtain a credit card and start building your credit history.
Use Wallet Savvy’s Credit Cards for Newcomers to Canada section to evaluate the best credit card for your needs. We are here to make you “Wallet Savvy”!