Credit Tip Tuesday #40 - Everything You Need to Know About Credit Cards

Basics

A credit card is a small rectangular piece of plastic or metal provided by a bank or financial services business that enables cardholders to borrow funding for products and services at merchants that accept credit cards. In contrast to a debit card, which allows you to spend money by withdrawing funds from your bank account that you have already deposited. Those who choose debit cards choose them because there are usually few or no related fees unless consumers go over their credit limit and suffer an overdraft fee.

How Credit Cards Work

Whether you understand the premise of how credit cards work or not, there is always more to learn! When you use a credit card, you're borrowing money from the issuing bank, which is linked to a credit account with the bank. The bank authorizes a credit limit which is the maximum amount you are able to spend. This is decided based on credit history, income and debts you may owe. The annual percentage rate, or APR, is the cost of borrowing money with a credit card over the course of a year - it's the interest rate you'll pay if you don't pay off your expenses during the grace period. A credit card can be used to buy goods or services from any retailer who accepts them, as well as to get a cash advance. You can use your credit card to make purchases up to the credit limit. Then you can pay it back at a later time. You can also utilize credit cards to get a positive credit history by practicing good financial practices. However, carrying a credit card balance might result in interest costs, so you need to make sure to pay off your statement in time to avoid surplus charges or else this will affect your right to borrow money in the future. Your balance is the amount you owe the bank.

Reasons to Get a Credit Card?

• Security

• • If somebody makes purchases on your card that aren't you, or if a purchase is faulty, your credit card providers will likely financially compensate for the scam purchase. So, you are not liable for any fraud if you notify your card issuer that you have lost your card before any fraudulent transactions are made, or if your card information (but not the actual card) is taken.

• Ability to Borrow

• • Credit cards allow you to pay for something today with your card and pay off the balance later. Most issuers provide a grace period during which you are not required to pay interest.

• Redeeming points

• • Each rewards programme has its unique structure for earning, managing, and redeeming rewards depending on the credit card company. Companies like Plask Secured Credit Card let you earn rewards points on everyday purchases everywhere that Visa is accepted. You can redeem them for merchandise, travel needs, and more!

• Universal Usage

• • Credit cards are accepted in almost every country, at least in big cities. Visa and Mastercard are the most generally recognized credit card brands worldwide. Using a credit card for your spending needs can make travelling abroad much easier, as you won't have to deal with currency conversions and, with the correct credit card, you won't have to pay excessive international transaction fees.

• Good credit score

• • A credit score is a measure of how reliable you are with your credit and how risky it would be to loan you money. Your credit score is a number between 300-900, and it helps determine your creditworthiness. Credit scores are calculated using information from your credit report. There is no “magic number” when it comes to credit scores, and models may vary but usually scores from 

• • • 300 - 559 are considered "poor" or "sub-prime"

• • • 560-659 are considered "fair" 

• • • 660-724 are considered “good”; 

• • • 725 - 759 are considered very good; and 

• • • 760 and up are considered “excellent.”

• • Lenders use credit scores to determine the level of risk that a borrower will be. Higher credit scores mean that you have exhibited responsible credit behaviour in the past and will make lenders more confident in your ability to repay a debt.

• Insurances 

• • Credit card balance insurance is also recognized as balance insurance and balance protection insurance. It provides extended coverage that can help you pay off outstanding balances due to the loss of work, injury etc. When you apply for a credit card, activate your card, or make adjustments to your credit card, such as increasing your credit limit, you may be given credit card debt insurance.

• Convenience

• • Each month, your credit card gives you a statement that details when, where, and how much you spent on all purchases made with your card. Managing your finances with a credit card is more convenient than with other payment options. Moreover, some credit cards include year-end statements that summarise your spending over the course of the year, which can be useful for tax purposes and other tracking.

Credit Card Applications

You're basically asking a credit card provider to take a gamble on you when you apply for your first credit card. You may not be ready to apply for a credit card right now, depending on your  “creditworthiness,” but you can take proactive efforts to improve your chances of getting approved in the future.

• Your credit score is essentially a three-digit number that lenders use to help them understand your spending habits and how trustworthy you are! Your credit history is a part of your credit file and is made up of facts gathered from credit card providers, financial institutions, retailers and other lenders. It details how long your various credit accounts have been in existence. Credit history is a record of a consumer's ability to repay debts and demonstrated responsibility in repaying debts. In general, creditors like to see that you’ve been able to handle credit accounts over a period of time correctly.

Credit cards are divided into three categories:

• Cards that assist you in repairing or improving your credit if it is limited or damaged.
• Cards that let you save money on interest charges.
• Cards that award you points.

It is your responsibility to assess your specific needs! Are you more interested in low-interest cards, or ones with rewards, travel and cash back? Whether you're looking to establish credit, borrow money, or earn rewards, the credit card you use should help you reach your financial goals in the most cost-effective and efficient way possible.

Credit Card Companies

If you are looking to build or rebuild your credit, are new to Canada, this is your first credit card, or you are looking for a credit card company that offers you a premium reward and free credit insight - Plastk Secured Credit Card might be right for you. Later in this article, we unpack the difference between an unsecured and a secured credit card. Plastk Secured Credit Card is the newest and best way to build your credit and get rewarded for it.

How Do You Choose the Right Credit Card?

Before you apply for your first credit card, you must do some research into the different credit cards available to you. You must evaluate what your needs, wants and what you are able to fiscally manage. You should research various different credit cards and make sure they tick off as many wants and needs as possible. You can use the checklist below, when doing your research on different credit cards so you can decide what is best for you. This check list is made up of a set of questions that you can ask yourself, before sending in your credit application.

You also should look into the differences between secured and unsecured credit cards. Although they are extremely similar, there are some differences that you must consider before deciding what card you should apply for. 

Unsecured vs Secured

One of the most important things you need to know is the difference between secured and unsecured credit cards. Figuring out what is best for you and your needs can help you master your finances in Canada. So what are the differences between the two?

The biggest difference between secured and unsecured credit cards is the deposit. Secured credit cards require a deposit in order to secure your credit limit. Your credit limit depends on your security deposit. 

​​Unsecured credit cards don’t require a deposit. Your credit card limit for these cards depends on your credit history and the amount you are approved for by the lender.  BUT secured Credit Cards often have instant or easy approval. This means once you apply for a secured credit card, you are almost always guaranteed to receive your card. With Plastk, you will be instantly approved, once you apply for our card. In order to secure your credit limit, you will have to pay a deposit.

As always let us know if you found this blog informative! We are passionate about financial literacy, so we want all of the Plastk family to stay the most informed possible. 

Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.