Thursday, March 22, 2012

Credit Cards 101

The topic of credit cards is often a bit sketchy at times. Some of you're parents may not want you to get one and depending on the type of spender you are, that may be a good thing. Not to sound like your parent, but if you spend tons of money carelessly like you're a hip hop star, please don't get a credit card.

Always be cautious when signing up for a credit card, think it through and determine what your needs are.

There are a few things that I live by when it comes to using my credit card.

  • Whatever you purchase on your credit card, you should have the money to pay that balance back by the time your payment is required at the end of each month
  • Don't pay the minimum payment, pay your whole bill if possible. If not you will continuously get charged interest at rates that hover around 18-19%
  • Don't miss a payment!
  • Since I have the BMO Mastercard I tend to make purchases with my Mastercard even though I have the money in my bank account just so I can collect points, I then am able to pay my Mastercard bill using my credit card with no problems (since I already had the money).
  • By paying your balance on time and in full you have the ability to build excellent credit rating which will help in the future when taking out a mortgage and other dealings with the bank.
  • Please, don't take your credit card out with you when you go downtown, I've heard some horror stories.
Click here to view the Cheap Students credit card chart.

Some more information if you just LOVE reading.

8 Important Words to Remember
This article was found at 

  1. Annual fee – If your credit card charges an annual fee, ask the lender if they’ll waive it. They may be willing to do this to keep your business.
  2. Balance due – Your statement will tell you what you owe and when it’s due. The amount due can include any unpaid balance you owe from a previous bill, as well as any new charges, interest, late fees or annual fees.
  3. Credit limit – This is the amount you can borrow using your card. The lender can’t change this limit without letting you know.
  4. Finance charges – If you don't pay your bill on time, these charges can include late fees plus interest. You’ll likely pay a higher rate of interest on any cash you borrow using your card and a lower rate on money you borrow for purchases. Your credit card company treats these as two different kinds of balances.
  5. Grace period – This is the time you have to pay off the balance you owe each month before you have to pay interest. In most cases, the grace period starts on the billing date and ends a certain number of days after. Under Canadian rules, if you pay off your balance in full each month, your lender must give you a grace period of at least 21 days on all new purchases. If you don’t, you’ll pay interest on the full amount you owe.
  6. Annual percentage rate (APR) – This includes all loan service costs and interest. It may be higher than the interest rate you see in the loan contract.
  7. Introductory rate – This is a special offer that gives you a temporary, lower APR. In most cases, the offer lasts about 6 months. Then it goes up to the normal rate for your type of card. Your lender must tell you in advance when interest rates are going to increase – even if the information is part of your contract.
  8. Minimum monthly payment – Most cards ask only for a minimum payment each month. This is often 5% of the current balance or $10, whichever is more. Your monthly statement will tell you how long it will take to fully repay what you owe if you only make the minimum payment each month. Use this calculator to see how long it will take to pay off your card if you make the minimum monthly payment

What is a Credit Score?

Your credit score is a judgment about your financial health, at a specific point in time. It indicates the risk you represent for lenders, compared with other consumers.
There are many different ways to work out credit scores. The credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900. High scores on this scale are good. The higher your score, the lower the risk for the lender. Lenders may also have their own ways of arriving at credit scores. In addition, lenders must decide on the lowest score you can have and still borrow money from them. They can also use your score to set the interest rate you will pay.

What is a Credit Rating?

North American Standard Account Ratings
Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line.
Source: Equifax Canada
R0Too new to rate; approved but not used.
R1Pays (or paid) within 30 days of payment due date or not over one payment past due.
R2Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
R3Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
R4Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
R5Account is at least 120 days overdue, but is not yet rated "9."
R6This rating does not exist.
R7Making regular payments through a special arrangement to settle your debts.
R8Repossession (voluntary or involuntary return of merchandise).
R9Bad debt; placed for collection; moved without giving a new address or bankruptcy.

If you just read all of this and you were like..please stop this madness. Read this summary instead.
  • A credit score is a score given to you based on how safe it would be to lend you money, low is bad, high is good
  • A credit rating is based on how quickly you pay for bills (credit cards, hydro, cell phone etc.), the more reliable your payments are the better. Do you pay your bills on time?
Visa vs. Mastercard
What do these 2 brands mean? 
Simply put they are the service providers that allow your credit card transactions to take place. Both are widely accepted around the world and at major retailers, if they don't take your credit card, you're probably better just using your debit card/cash anyways.

Mastercard/Visa Availability

Canadian Western Bank
Citzens Bank of Canada

Laurentian Bank of Canada

Scotia Bank

TD Canada Trust

When applying for a credit card they may try to swindle you into buying extra add-on's.
Some examples of these are;
-Extended warranty
-Balance protection 
Often you don't need these add on's as a student. If you are really considering these add on's do some research online and see if it's right for you, if they aren't simply tell them no thank you, despite how persistent they can be.



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