Applying for your first credit card is an important decision. As we mentioned in Credit Tip Tuesday #15, every credit card is different, so it is important to do your research before applying for a new credit card. Throughout Credit Tip Tuesday, we have broken down various elements of credit card education, including explaining what your credit score is, how to budget and all about your credit utilization.
However, new Canadian credit card holders may feel overwhelmed by this information. This week, we’re breaking down key information you need to know about credit cards in Canada and explaining what important credit language means. Being informed about credit is the best way to become a master of your finances. Plastk is here to help you make this possible.
Key Terms
Credit Score - A credit score is a three-digit number that explains how trustworthy you are to creditors, lenders or banks. Paying your bills off on time can help to increase these numbers.
Plastk’s Guide to Credit Scores
Credit Utilization - Credit utilization (or simply put, credit card utilization) is the amount of available credit you use at any given time. Credit utilization rate is the ratio of your outstanding credit card balances to your credit card limit. It tells you how much of the available credit you are using.
Credit Limit - The maximum amount of funds you are able to charge during a statement period. With Plastk, this number is the same as your security deposit. Your credit limit can depend on your credit score. With Plastk and other secured credit cards, this depends on your deposit! Your limit can be between $300-$10,000.
Credit Balance - This is the amount of funds you have spent or owe on your credit card. Paying this back on time will help to rebuild your credit.
Interest Rate - The percentage of interest that you will pay on late payments. Every credit card has a different interest rate and late fee.
Guaranteed Approval Credit Cards - Credit cards that offer instant approval for new members.
Rewards Card - A credit card that offers cashback, points or perks for their members. Not every Canadian credit card company offers a rewards program. Make sure to do your research before deciding on a card if this is important to you!
Plastk’s Insider Tips
Now that you know the basics of credit language, let’s learn more about applying for your first credit card. Once you’ve done your research and found the credit card that works best for you, you need to understand more about your funds.
Tip One - Know Your Limits
Your credit limit tells you how much you are able to spend during a usage period. Most cards have a usage period of 28 days. This means that if your limit is $1,000 you can spend up to that total amount over the course of 28 days.
However, as we learned in prior weeks, keeping your credit card utilization ratio at approximately 30% can help to improve your credit score! Creating a budget and setting reminders for when your payment is due can help to ensure that you are never late on a payment and keep your utilization ratio low.
Plastk’s quick tip: Stick to a budget and keep track of your purchases so you never go over your limit or incur late fees.
Tip Two - Get Rewarded
Plastk, as well as many other credit card companies, offer rewards for our members. Take advantage of this program by putting everyday purchases on your card. If you start collecting points early, you’ll be able to exchange them for big-ticket items.
Plastk’s quick tip: Don’t spend your points right away! Save your points until you can #TreatYoSelf to something special.
Tip Three - Strive for Higher
One of the best things you can do to improve your credit history is to increase your credit limit! For secured credit cards, like Plastk, your limit depends on your security deposit. If you are using a secured credit card, try setting aside $25 a week to go towards your credit limit. If you do this, you can increase your credit limit by $100 each month! If your budget doesn’t have room for $25 in savings, save whatever you can! Before you know if you’ll be able to increase your credit limit and be one step closer to financial freedom.
Plastk’s quick tip: Small savings are better than NO savings! When using your credit card and thinking about your financial future, keep in mind the goals you have for yourself.
Tip Four - Ask for Help
You’re going to make mistakes. No one is perfect, especially new credit cardholders. Many new credit card owners or people with bad credit get discouraged when they make financial mistakes. Don’t let mistakes ruin your progress. If you become anxious or stressed out about your finances, this is normal! Asking for financial help is a good way to understand your financial journey better.
This can be in the form of reading blogs, listening to podcasts, watching videos or even calling your credit card company’s Client Success Team!
Plastk’s Quick Take - At Plastk we call mistakes SLIP UPS! If you slip, we’ll be here to help you get back up and running.
Tip Five - Strive for a High Credit Score
It's no secret that the Plastk family LOVES knowing their credit score. There are many contributing factors that play a part in improving your credit score and credit history. Paying your bills on time and owning a secured credit card can help to build your credit score! Don't know your credit score? Don't worry! You can check yours for FREE today with Plastk.
That is our beginner guide to your first secured credit card. Whether you are a first-time Canadian credit card owner, looking for a card to improve your credit or just looking to add a new card to your wallet, Plastk is here to help you on your financial journey.
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.
