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Why you need a credit card |
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Many new immigrants to Canada come from countries where cash is king,
and the use of credit cards is limited. This is especially true of
people who pride themselves on living within their income, and who
might consider card use akin to heading down the Valley of Debt. Well, welcome to Canada, where not having a credit card can be very damaging to your financial health.
Looking to buy a home and need a mortgage? You won't get
one, not unless you have a good credit score or rating. Need a loan to purchase
a car? Ditto on the credit rating.
Think you can build a good credit rating by using cash for all your
purchases, and making payments as soon as you receive an invoice? Think
again.
The only way you can build a credit rating, is by using a credit card.
And having used a credit card outside of North America counts for
zilch, you need to have a Canadian or US card. You could perhaps argue
that if you already have a credit card with, say, Visa or MasterCard,
the banks here would be able to tap into those records. But it doesn't
work that way, they only use the credit data associated with North
American-issued cards.
What exactly is Credit Rating? Your credit rating is a measure
of your credit-worthiness: your reputation for paying back money. The
credit bureau provides your credit history, which is a list of
facts about how you handle debt. This information is gathered from
financial institutions, retailers, phone and cable companies and other
lenders.
Most of your credit information remains on your file for seven years.
The ranking each creditor gives you is called your "credit
rating".
Building a favourable credit rating takes time, from a few months to several years.
Credit ratings and records are maintained by central bureaus and the
ratings are on a sliding scale from 1 to 9, with 1 being the best and 9
the worst.
As a newcomer, your credit rating or credit experience would be 0. So
as you can see, that's even worse than having the worst possible credit
rating
That is why you should get yourself a credit card as soon as possible after you arrive here.
Now, because you may not be able to secure a job right away you cannot
show details of employment history when you apply for a credit card.
Some banks may even refuse you a credit card on these grounds.
By this time you will probably have opened a bank account, so start
your search for a credit card with the bank where you have your
account. You might be surprised to find that the bank might turn down
your application for a credit card even though you may have a few
thousand dollars sitting in your account.
Shop around at other banks. There is tremendous competition and you
could find another banker willing to issue you a credit card. But very
often, for a newcomer, the only alternative is to put in a deposit
against a credit card. In other words, you deposit an amount of $1,000
and you are issued a credit card with a spending limit of up to that
amount. Look for a card with no annual fee.
It may be frustrating that you have to deposit some money to get a
credit card but do it all the same. It is the only way to beat the
system. As far as the banks are concerned, you are a newcomer and a
risk factor and until you prove otherwise by establishing a good credit
rating they are not going to lend you money.
Once you have the card, start making an occasional purchase here or
there, even if it is for small amounts. At the end of the month, when
you receive your bill, make sure that you pay off the amount by the due
date.
Over the course of the months, these records will show in the central
register that you are using a credit card and that you are prompt with
your payments, thus building up a favourable credit rating.
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