Rounding it up
If you’re a newcomer, consider applying for a credit card to build your credit history and earn rewards for buying the daily essentials.
It’s important to build your credit history in case you ever need to secure a loan for a big ticket purchase, like a car or home.
When picking a new card, focus on cash back rewards and low interest rates and fees when picking a new card.
Of course, ensure you stay on top of your credit card payments so you don’t find yourself in a pool of debt.
Canadian residents, new and old, need to establish a strong credit history if they hope to get a loan for a big ticket purchase like buying a home or a car one day. While most adults understand the importance of a stellar credit score, many might not realize how crucial credit cards can be when it comes to developing one.
Plus, determining which credit card is the right option for you isn’t easy, especially since there are so many options for new residents to choose from.
What’s the difference between a good credit card provider and a great one? Which benefits will prove to be the most helpful for new residents? How can new residents stay on top of their credit card debt while familiarizing themselves with life in Canada? Review this guide to ensure your Canadian story gets off to a great start with the help of the right credit card.
Why does credit matter?
Many new Canadian residents may be feeling confident about their financial future. After all, Canada is a prosperous country with a growing economy that offers plenty of high-paying jobs. Furthermore, new residents are usually allowed into Canada in the first place because they’ve showcased sufficient savings and a demonstrable source of income. It’s thus understandable that some residents believe they don’t need credit cards or a strong credit history – but this is a tragic mistake.
Your credit score and credit history matter immensely, even if you have a high-paying job and a good amount of savings squirreled away for hard times. Those Canadian residents who aspire to become homeowners, for instance, will almost certainly need to secure a mortgage in order to achieve their dreams. Similarly, owning a nice car or sending your children off to an excellent school may require access to credit. Investing in a credit card should thus be a major priority, as paying off your monthly credit card debts is an excellent way to develop a robust credit history.
Other than opening your first bank account, possessing a Canadian credit card is probably the most important thing you can do to invest in your financial future. Before you decide on a credit card you should understand the pros and cons of the different options available to you.
The ups and downs of credit cards
There’s no denying that credit cards deliver immense benefits to their users. Still, there are some downsides to using a credit card with which you should be familiar. For example, they come with the potential to drive you into debt if you can’t keep up with your payments. Picking the wrong card may also saddle you with high interest rates that you may be comfortable affording, especially as a newcomer who’s still settling in.
Finally, you may inadvertently damage your credit score by failing to pay back what you owe, sending you one step backward on your journey to financial prosperity. Those worried about credit card debt should review the Canadian government’s official resource for getting out of debt.
Still, the advantages of owning a credit card far outweigh the risks. They help you minimize the amount of cash you carry and are an unparalleled tool for developing a strong credit score when managed properly. Best of all, most credit card options offer you rewards and benefits for shopping with certain vendors.
Not all credit cards are created equally – some perks will be more enticing to new Canadian residents than others. Let’s review these perks to determine which is the most attractive to your financial situation.
Credit card rewards
Different credit card providers compete with one another to offer the best reward programs. It’s your job to assess your options before picking a credit card that offers the most competitive rewards. When doing so, consider the following:
1. Cash back rewards
Cash back rewards are one of the most commonly offered credit card perks. As the name implies, a cash back reward is cash earned back every time you use your credit card to purchase something. Cash back points are often exchanged for specific goods or services, such as airline tickets or hotel rooms at a discounted rate.
You can often earn more cash back per purchase by shopping with select vendors or in certain industries; for example, food purchases frequently accrue additional cash back rewards. Always read the fine print of your credit card agreement to figure out where you can get the most cash back rewards when shopping.
KOHO’s reloadable prepaid Mastercard also offers cash back. With the Easy account, you’ll earn 1% cash back on groceries and transportation.
2. Shopping discounts
New Canadian residents will be happy to hear that they can take advantage of shopping discounts when using a credit card at select vendors. Popular credit card providers will partner with certain merchants that are popular with their consumer base. Amazon, Best Buy, Canadian Tire, Petro-Canada, and other major companies usually partner with at least one credit card provider to offer these discounts, so keep your eyes peeled.
Learn about fees and interest rates
Now that you know which credit card perks to be on the lookout for, you need to understand fees and interest rates related to your new Canadian credit card. Credit card providers compete with one another to offer low interest rates and manageable fees in order to lure in customers. Finding out which card is the right choice for you could come down to how much interest they charge or whether they’ll burden you with excessive fees. You can easily find a pre-made list of credit card options to easily compare their various features before finding the right choice for your situation.
From monthly charges to annual fees — credit cards can be expensive. Sometimes, the credit cards might have benefits so great that they outweigh the costs. They may also include foreign exchange fees whenever you use your credit card to conduct a transaction abroad. If you’re a newcomer who intends on travelling back and forth between Canada and your home country, look out for cards that waive fx fees (like KOHO Extra!).
Pay careful attention to your credit card interest rate. This is the variable amount of interest you’ll pay whenever you don’t pay your credit card bill at the end of the month. Avoiding steep interest rates, whether they’re annual or monthly, can help you save money and consume less of your budget, ensuring you retain the financial flexibility needed to build a healthy credit score.
Always read the fine print of your credit card agreement to learn about the fees and interest rates you’ll be grappling with. Some providers will even offer you a sign-on bonus for picking their card over competitors. Use online tools to compare and contrast the options, and consult friends and family members for their personal feedback if you lack credit card experience. Soon enough, you’ll be the proud new owner of a Canadian credit card and well on your way to establishing credit in your new country.
Ryan Severance is a professional freelance author and the owner of American Scribe LLC. With degrees in political science and socio-legal studies, he writes about business, politics, and law for clients around the world.