Critical to building a credit history, credit cards are a rite of passage into financial adulthood.
Even if you鈥檙e debt-phobic or have heard too many horror stories of people maxing out their cards, you can鈥檛 skip this step.
Cindy Marques, certified financial planner and director at Open Access Ltd., had one client in their 30s preparing to buy a home 鈥 while completely missing this piece of the puzzle.
鈥淭hey went to see if they鈥檙e eligible for a mortgage, and their (credit) score was non-existent, because they just never had credit cards,鈥 Marques said. 鈥淎nd they thought they were doing themselves a favour 鈥 鈥業 never had debt. So this shouldn鈥檛 be a problem.鈥欌
Credit cards, however, are important tools to build credit history and maintain a good credit score, Marques added. Thankfully most of them come with perks too, catering to almost every lifestyle.
Many people default to picking a card from their bank because it鈥檚 easier, says Shannon Terrell, a finance writer and spokesperson for NerdWallet Canada. But it鈥檚 better to shop around, especially with online-only banks.
鈥淏ecause they don鈥檛 have those same overhead costs as a traditional financial institution, they鈥檙e often able to offer better interest rates, lower fees, and better perks overall,鈥 Terrell said. 鈥淪o honestly, you have nothing to lose and everything to gain by shopping around.鈥
Marques agreed: just getting a credit card with your bank is a wasted opportunity.
Consider your lifestyle 鈥 where you are likely to do the most spending, where you might use rewards 鈥 to find your fit. A simple Google search will find many 鈥渂est of鈥 lists for cards in every category.
鈥淭hey will do all the comparisons for you, across all the different providers, and you can organize a list based on: I prioritize Air Miles, I prioritize cash back, I prioritize low interest rates,鈥 Marques said.
鈥淭hey鈥檒l compare all the providers with best in class in those categories, and show you their current rates, their current signup offers, et cetera.鈥
As for younger consumers, Marques said low interest rates aren鈥檛 typically a priority, assuming you aren鈥檛 already managing a lot of credit card debt and you鈥檙e not transferring a balance.
Instead, travel rewards and cash back from your favourite retailers are likely the biggest returns on your spending, she said. Options with no annual fees are also valuable for someone just starting out, although there will be fewer rewards.
When getting a new card, there isn鈥檛 much room for negotiation, Terrell said 鈥 what you see is what you get. If you want different or better perks, the provider will just point you to another card that offers them.
Negotiations come into play if you already have debt, Marques said, or are transferring debt between cards to take advantage of the lowest rate.
Using signup offers 鈥 such as zero interest for the first 12 months 鈥 with a balance transfer means you can get a break from interest and pay down your balance faster, she said. Or if you want to keep your current card, you can simply call your provider and move your balance to a lower-interest option.
鈥淭here is an opportunity to negotiate their interest rates or even negotiate on your annual fees,鈥 Marques said. 鈥淚 think a lot of consumers don鈥檛 realize that if you just call and ask 鈥 in a lot of cases, they will.鈥
In terms of hidden fees, Marques said most costs are upfront 鈥 annual fee, interest, ATM withdrawal fees, and so on. Read the full details about the card.
But some add-on insurance, such as balance protection, can be costly and challenging to claim. For many, Marques said, it鈥檚 better to skip. Often people sign up because they don鈥檛 know what the insurance is for, and lack the savvy to understand it鈥檚 unlikely they will ever claim it, she added.
Late and over-limit fees are penalties that young consumers should become familiar with quickly, Terrell said. You can be dinged as much as $60 for going over your credit limit.
The other 鈥渟neakier鈥 cost, she said, is the foreign transaction fee 鈥 not something people think about upfront, but many use their credit cards when they travel.
Even a card hyped up for travel rewards often still charges a percentage, usually around 2.5 per cent, on the transaction amount, Terrell said. Frequent travellers should seek out cards that advertise no fees for shopping while out of country.
As for hidden perks, many cards automatically carry insurance for purchases or travel, and Marques said these are usually under-claimed in the industry.
Credit card providers often have unused budgets for this coverage because people forget to claim them. Read the booklet that came with the card. Rental car company asking for extra insurance? New laptop broke down? If you paid with your credit card, Marques said, call them up.
This report by 好色tvwas first published March 5, 2024.
