Essential for building your credit history, credit cards are a rite of passage into financial adulthood.
Even if you have debt phobias or have heard plenty of horror stories of people who maxed out their cards, you can't skip this step.
Cindy Marques, a certified financial planner and director of Open Access Ltd, had a client in her 30s who was preparing to buy a home, but this piece of the puzzle was completely missing.
“They went to see if they could qualify for a mortgage, and their (credit) scores weren't there because they'd never had a credit card,” Marquez said. “And they thought they had an advantage: 'I didn't have any debt. So this should be fine.'
However, Marquez added that credit cards are an important tool for building credit history and maintaining a good credit score. Thankfully, most of them also come with perks and are suitable for just about any lifestyle.
Shannon Terrell, a financial writer and spokesperson for NerdWallet Canada, says many people default by choosing a card from their bank because it's easy. However, it is better to shop especially with online-only banks.
“Because they don't have the overheads of traditional financial institutions, they can often offer better interest rates, lower fees and better benefits overall,” Terrell said. “So honestly, you have nothing to lose and everything to gain by shopping.”
Marquez agreed. Just getting a credit card at the bank is a wasted opportunity.
Consider your lifestyle (where you spend the most, where you're likely to spend your rewards) to find what's right for you. A quick search on Google will reveal many “best” lists of cards in every category.
“They will compare all the different providers for you, and you can organize the list based on criteria such as: I prefer Air Miles, I I prioritize cash back, I prioritize low interest rates,” Marquez said.
“They compare all of the best-in-class providers in these categories and show you things like current rates and current sign-up offers.”
For younger consumers, Marquez said, low interest rates are generally not a priority, given they are not already managing large credit card debts or transferring balances.
Instead, travel rewards and cash back from your favorite retailers are likely to give you the biggest bang for your buck, she says. The no-annual-fee option also offers fewer benefits, but it's worth it for those just starting out.
There's not much room for negotiation when getting a new card, Terrell says. What you see is what you get. If you want different or better benefits, your provider can simply refer you to another card that offers them.
Marquez says you'll need to negotiate if you already have debt or are transferring debt between cards to take advantage of the lowest interest rates.
She said that by combining sign-up offers such as interest-free for the first 12 months with a balance transfer, you can waive interest and pay off your balance faster. Or, if you want to keep your current card, you can call your provider and have them move your balance to a lower-interest option.
“You also have the opportunity to negotiate the interest rate and negotiate the annual fee,” Marquez said. “I think a lot of consumers don't realize that if they call and ask questions, they often understand.”
Regarding hidden fees, Marquez said most costs are paid upfront, such as annual fees, interest rates, and ATM withdrawal fees. Please read all card details.
However, some additional insurance, such as balance protection, can be expensive and difficult to claim. For many people, Marquez says it's better to skip it. Often people take out insurance because they don't know what it's for and lack the knowledge to understand that they're unlikely to make a claim, she added.
Terrell said late fees and over-the-limit fees are penalties that young consumers will need to get used to quickly. If you exceed your credit limit, you can be fined up to $60.
Another “sneaky” expense is foreign transaction fees, she said. This is not something people think about beforehand, but many people use credit cards when they travel.
Terrell says even cards that are advertised as travel rewards often charge a percentage of the transaction amount, usually around 2.5 percent. Frequent travelers should look for cards that advertise no fees for shopping abroad.
As for hidden perks, many cards automatically come with shopping and travel insurance, but Marquez said these perks are typically undervalued in the industry.
Credit card companies often have unspent budgets for this coverage because people forget to make claims. Read the booklet included with your card. Does your rental car company require additional insurance? Did your new laptop break down? If you paid by credit card, please call us, Marquez said.
This report by The Canadian Press was first published March 5, 2024.