Credit card advice
November 23, 2014 5:27 PM Subscribe
I live in Toronto I recently started a full-time job (two weeks ago) and I've been using a debit card (with RBC) for the past five years. I didn't want to get a credit card because I didn't want to get sucked into the system. But yesterday changed my outlook on things, so I decided to apply for a low interest card. Question is, what options do I have and would I get accepted?
I tried to buy a $1,600 piece of electronic equipment from Bestbuy with a 12-month installment plan, but after 5 minutes with customer service i was rejected. This really upset me, so I decided that I couldn't ignore the system any longer. Moreover, a friend of mine told me that my credit won't be improving much without a credit card, even if I pay my bills on time. I want to know what kind of options (with low interest credit cards) I have because I don't know much about how these things work, and whether I will be approved. Ideas?
I tried to buy a $1,600 piece of electronic equipment from Bestbuy with a 12-month installment plan, but after 5 minutes with customer service i was rejected. This really upset me, so I decided that I couldn't ignore the system any longer. Moreover, a friend of mine told me that my credit won't be improving much without a credit card, even if I pay my bills on time. I want to know what kind of options (with low interest credit cards) I have because I don't know much about how these things work, and whether I will be approved. Ideas?
Yes, you will be accepted--no credit is better than bad credit for this purpose. Just be smart: pay your bill in full, don't rack up more than you can afford, always keep a couple hundred (at least) available in case of emergency. Leaving your card at home all the time is one of the best ways to avoid impulse purchases.
posted by feckless fecal fear mongering at 5:48 PM on November 23, 2014
posted by feckless fecal fear mongering at 5:48 PM on November 23, 2014
It sounds like you want to use your credit card like you would an installment plan - buy something upfront and then pay it off over several months. Don't do this!!! There are oodles of hidden fees and interest builds on top of interest. If you want to $1600 stereo system, save up first and pay all at once. I might have misunderstood your intentions though. There are a bunch of sites that compare credit cards based on any number of criteria. If I could suggest finding one with rewards that you'll use. For example, I get money back to use at REI - which is great, since I shop there all the time. Many other people find cards that give them airline rewards.
posted by Toddles at 5:52 PM on November 23, 2014 [1 favorite]
posted by Toddles at 5:52 PM on November 23, 2014 [1 favorite]
Response by poster: I have no intention whatsoever of buying anything I can't afford with a credit card. It is merely a step I need to take in order to get approved for installment plans at retail shops...
posted by cyrusw8 at 5:57 PM on November 23, 2014
posted by cyrusw8 at 5:57 PM on November 23, 2014
I was rejected for a credit card from Bank of America, where I've kept a bank account with checking and healthy savings without a single overdraft fee for more than a decade, because of a "thin file" credit score. They offered me one where I would pay $500 up front as insurance (I forget what those are called). I didn't take the offer; instead, I went to my local credit union, and they were happy to issue me a card.
posted by pretentious illiterate at 5:58 PM on November 23, 2014
posted by pretentious illiterate at 5:58 PM on November 23, 2014
Apply and then get your first card and start. With no credit, you can't be too picky about the best rates, etc. just start using it and then pay it off in full every 2 weeks or whenever you get paid. Save for bigger purchases, don't get sucked into the idea of paying something off over time instead of right away. Once you have some credit established, you can shop for a card with lower costs and better rewards.
Use the credit card instead of your debit card. Credit cards have protections if your card is used fraudulently. Debit cards don't have as many and having your checking account emptied can be devastating. Make sure you pay off what you've spent every time you're paid and that will make it hard to get into trouble.
posted by quince at 5:59 PM on November 23, 2014
Use the credit card instead of your debit card. Credit cards have protections if your card is used fraudulently. Debit cards don't have as many and having your checking account emptied can be devastating. Make sure you pay off what you've spent every time you're paid and that will make it hard to get into trouble.
posted by quince at 5:59 PM on November 23, 2014
This is really not as complicated as you imagine it to be. If you're gainfully employed, you'll almost certainly be approved for some kind of card and most banks offer cards that are largely interchangeable with each other. Consider just going to your bank (or calling them) and finding out what they offer. Tell them how much money you make and how much money you have and they'll direct you to the appropriate card to apply for.
If you don't intend to carry a balance on the card, rather than a low-interest card, you might prefer a no-fee card, since your interest rate doesn't matter if you never pay interest.
Here are two tools to help:
The incredibly frustratingly designed but useful Smart Money best credit cards.
The Canadian government's card selector tool.
posted by jacquilynne at 6:06 PM on November 23, 2014
If you don't intend to carry a balance on the card, rather than a low-interest card, you might prefer a no-fee card, since your interest rate doesn't matter if you never pay interest.
Here are two tools to help:
The incredibly frustratingly designed but useful Smart Money best credit cards.
The Canadian government's card selector tool.
posted by jacquilynne at 6:06 PM on November 23, 2014
Came here to second what quince said - more protection against fraud with a credit card than a debit card and given the number of times retail databases have been hacked recently it's a better way to go. Look at credit unions, pay it off monthly and know you're building a better credit score which will give you more financial options in the future.
posted by leslies at 6:31 PM on November 23, 2014
posted by leslies at 6:31 PM on November 23, 2014
Get a card from RBC that does not have any annual fee. Set things up in your account so that the balance is automatically paid in full. That's what I recommended to my kids.
posted by aroberge at 6:31 PM on November 23, 2014
posted by aroberge at 6:31 PM on November 23, 2014
So you're asking about credit cards but based on your experience at the store you're actually in need of a better credit score (or any credit score).
Here in the US, a credit score is based on a number of factors, including the amount of credit you have available, how long you've had it, and how much of it is used. Of those, the latter two are variables that you can strategically influence, but doing so requires long term strategy and discipline.
There's no better time than now to get a no-fee credit card with a well-established card issuer that isn't going anywhere, and make a show of not using it at all, or using it very modestly and paying it off in full whenever you do. That way when it's 2014 and you have a card that says "Cardmember since 19XX" with no outstanding balance, it is one of the anchors getting you that 800+ credit score.
You don't really want to bounce around from one card to another, if possible. Pick well for that first card, and then eventually when another bank decides you seem like a good prospect, sign up for another and then set the first aside, only making a charge once or twice a year to keep it "active." Early on, your credit limit might only be a few hundred dollars. It doesn't matter if they want to issue you that card with a 25% APR. There's a grace period before they charge interest on purchases, and you can probably pay it off interest-free in most cases by making a prompt payment. As you get to be a longtime customer, they'll let you transition seamlessly into a better deal at better rates with a higher credit line.
Once you've got it and if you're absolutely certain you are disciplined enough to pay off the credit card to avoid interest charges, you can pay for many things using the card. It will come with better consumer protections than a debit card, and may carry benefits such as extended manufacturers warranties and other bennies if you read the fine print. The one thing you do NOT want to do with a credit card is to carry a balance. They want you to. They desperately want you to. They make lots of money off the people who do. Don't fall into that trap. If you need a loan, go to your bank and get a signature loan.
posted by jgreco at 7:03 PM on November 23, 2014 [1 favorite]
Here in the US, a credit score is based on a number of factors, including the amount of credit you have available, how long you've had it, and how much of it is used. Of those, the latter two are variables that you can strategically influence, but doing so requires long term strategy and discipline.
There's no better time than now to get a no-fee credit card with a well-established card issuer that isn't going anywhere, and make a show of not using it at all, or using it very modestly and paying it off in full whenever you do. That way when it's 2014 and you have a card that says "Cardmember since 19XX" with no outstanding balance, it is one of the anchors getting you that 800+ credit score.
You don't really want to bounce around from one card to another, if possible. Pick well for that first card, and then eventually when another bank decides you seem like a good prospect, sign up for another and then set the first aside, only making a charge once or twice a year to keep it "active." Early on, your credit limit might only be a few hundred dollars. It doesn't matter if they want to issue you that card with a 25% APR. There's a grace period before they charge interest on purchases, and you can probably pay it off interest-free in most cases by making a prompt payment. As you get to be a longtime customer, they'll let you transition seamlessly into a better deal at better rates with a higher credit line.
Once you've got it and if you're absolutely certain you are disciplined enough to pay off the credit card to avoid interest charges, you can pay for many things using the card. It will come with better consumer protections than a debit card, and may carry benefits such as extended manufacturers warranties and other bennies if you read the fine print. The one thing you do NOT want to do with a credit card is to carry a balance. They want you to. They desperately want you to. They make lots of money off the people who do. Don't fall into that trap. If you need a loan, go to your bank and get a signature loan.
posted by jgreco at 7:03 PM on November 23, 2014 [1 favorite]
If you collect any kind of points with any regularity (air miles, shoppers optimum, scene points, etc.) get the card that gives you those points. Put everything you buy on your credit card and pay the full balance every month. Do not ever pay late or pay anything less than the full balance.
On another note, if you think you might have any need for credit that you will not pay off every month, ask your bank for a line of credit. The interest is much lower than a credit card and it also establishes a credit history. BestBuy said "credit card" but what they want is a credit history: a history of being approved by someone, spending a little money, and paying it off.
posted by If only I had a penguin... at 7:42 PM on November 23, 2014
On another note, if you think you might have any need for credit that you will not pay off every month, ask your bank for a line of credit. The interest is much lower than a credit card and it also establishes a credit history. BestBuy said "credit card" but what they want is a credit history: a history of being approved by someone, spending a little money, and paying it off.
posted by If only I had a penguin... at 7:42 PM on November 23, 2014
I have no intention whatsoever of buying anything I can't afford with a credit card. It is merely a step I need to take in order to get approved for installment plans at retail shops...
If you're buying something on an instalment plan, by definition you can't afford it, otherwise you'd be able to just buy it. Save the money if you want a new stereo.
You can get a credit card too (I have one for large purchases like airline tickets, electronics or hotels) and as long as you pay it off in full, every month, it can be useful for building credit and for additional protections on large purchases. But if you're in a new job for two weeks and you're already committing to buying $1600 stereos on instalment plans, I would gently suggest you may not wish to get too deeply into consumer credit for the moment. Save up a good emergency fund before you do anything else, and read a few personal finance books.
You might also want to look at a budgeting system. I use You Need A Budget, which is very good for getting across the fundamentals of zero-based budgeting and building really solid habits for novice budgeters. It has a nice long trial period too.
posted by Happy Dave at 2:12 AM on November 24, 2014 [3 favorites]
If you're buying something on an instalment plan, by definition you can't afford it, otherwise you'd be able to just buy it. Save the money if you want a new stereo.
You can get a credit card too (I have one for large purchases like airline tickets, electronics or hotels) and as long as you pay it off in full, every month, it can be useful for building credit and for additional protections on large purchases. But if you're in a new job for two weeks and you're already committing to buying $1600 stereos on instalment plans, I would gently suggest you may not wish to get too deeply into consumer credit for the moment. Save up a good emergency fund before you do anything else, and read a few personal finance books.
You might also want to look at a budgeting system. I use You Need A Budget, which is very good for getting across the fundamentals of zero-based budgeting and building really solid habits for novice budgeters. It has a nice long trial period too.
posted by Happy Dave at 2:12 AM on November 24, 2014 [3 favorites]
Wow.
Hi. If you need a new computer or whatever today and you don't have the money, an instalment plan to a retailer or a credit card purchase is the traditional way to do this. It's nice for the people saying "and you pay the whole credit card bill every month" but that isn't always a possibility for all of us.
Obviously, at Best Buy you get 18 months free credit and that's nice (although I didn't read the small print, and you should.) You can figure out how a similar 18 month repayment would work with a credit card here. If you make a $1600 purchase today at a whackadoodle interest rate of 18% and pay it off over 18 months, that's $102 per month and a total of $238 in interest.
So it becomes a question of whether this object is worth an extra $238 to you. I once bought a television at an insane 22.9% and my husband and I joke that it is the most expensive television in the world (it totally is not) but signing up to pay €13 for 16 months was far less stressful than trying to find €300 the very day we completed renovations and moved into our new house.
If you can get a credit card but can't get Best Buy to extend you credit, putting something you actually need on a credit card or a high-interest payment plan when you know you can make the payments is reality for low-income people and if you're financially responsible, not the portal to Satan's Loan Service. Yes, even with the interest rates.
posted by DarlingBri at 3:49 AM on November 24, 2014
Hi. If you need a new computer or whatever today and you don't have the money, an instalment plan to a retailer or a credit card purchase is the traditional way to do this. It's nice for the people saying "and you pay the whole credit card bill every month" but that isn't always a possibility for all of us.
Obviously, at Best Buy you get 18 months free credit and that's nice (although I didn't read the small print, and you should.) You can figure out how a similar 18 month repayment would work with a credit card here. If you make a $1600 purchase today at a whackadoodle interest rate of 18% and pay it off over 18 months, that's $102 per month and a total of $238 in interest.
So it becomes a question of whether this object is worth an extra $238 to you. I once bought a television at an insane 22.9% and my husband and I joke that it is the most expensive television in the world (it totally is not) but signing up to pay €13 for 16 months was far less stressful than trying to find €300 the very day we completed renovations and moved into our new house.
If you can get a credit card but can't get Best Buy to extend you credit, putting something you actually need on a credit card or a high-interest payment plan when you know you can make the payments is reality for low-income people and if you're financially responsible, not the portal to Satan's Loan Service. Yes, even with the interest rates.
posted by DarlingBri at 3:49 AM on November 24, 2014
Sorry, I took the reference to a '$1600 stereo' from another poster, not the OP. A stereo is one thing, a laptop another, a car etc yet another. Needs vs wants are, of course, relative.
DarlingBri, while I agree that any credit agreement can be an informed decision, the poster's (self-acknowledged) relative lack of knowledge about credit cards and how they work indicates to me that they are considering a credit card purely to boost credit score in order to qualify for a loan, which is what an instalment plan is. Two weeks into a new job isn't a great time to be considering loans for anything. They may not have that job in six months time, given probationary periods etc.
My point is not that credit cards and/or loans are always Tools of Evil. But, cyrusw8, you seem to be wary of consumer credit in general (as seen with your reference to 'the system') so if this is a piece of electronics you want, rather than need, I'd encourage you to budget for it and save up, rather than getting into the credit score game.
I say this as someone who clawed their way out of consumer debt, accumulated one loan and overdraft at a time, all taken out with the intention to pay them off, of course. It can be a slippery slope, if you're not fully aware of the pitfalls (to horribly mix metaphors).
posted by Happy Dave at 4:47 AM on November 24, 2014 [2 favorites]
DarlingBri, while I agree that any credit agreement can be an informed decision, the poster's (self-acknowledged) relative lack of knowledge about credit cards and how they work indicates to me that they are considering a credit card purely to boost credit score in order to qualify for a loan, which is what an instalment plan is. Two weeks into a new job isn't a great time to be considering loans for anything. They may not have that job in six months time, given probationary periods etc.
My point is not that credit cards and/or loans are always Tools of Evil. But, cyrusw8, you seem to be wary of consumer credit in general (as seen with your reference to 'the system') so if this is a piece of electronics you want, rather than need, I'd encourage you to budget for it and save up, rather than getting into the credit score game.
I say this as someone who clawed their way out of consumer debt, accumulated one loan and overdraft at a time, all taken out with the intention to pay them off, of course. It can be a slippery slope, if you're not fully aware of the pitfalls (to horribly mix metaphors).
posted by Happy Dave at 4:47 AM on November 24, 2014 [2 favorites]
You should have a slightly easier time getting a credit card from your existing bank. Your bank knows more about you and will be more willing to extend you credit as opposed to a retailer who knows nothing more about you than what the credit agencies can tell them.
I agree to go with a no fee card and there will likely be a low limit. If necessary, go with a secured credit card (not pre-paid) but only if necessary. A secured card requires an initial deposit, which you top up with the amount of your purchases that month.From the point of view of your spending habits, it will work the same as a debit card, however it is reported to the credit agencies as if it is a regular credit card. That will get you a better credit rating, which you will need for that line of credit, a future mortgage, etc.
On another note, if you think you might have any need for credit that you will not pay off every month, ask your bank for a line of credit. The interest is much lower than a credit card and it also establishes a credit history. BestBuy said "credit card" but what they want is a credit history: a history of being approved by someone, spending a little money, and paying it off.
A line of credit will also save you the hassle of applying for credit at the various retail shops and allow you to see how much you actually owe as opposed to keeping track of various payments that are due when the one year or eighteen month grace periods are up. You should also be able to finance those purchases more cheaply than the 69.99 "admin fee" from Best Buy.
posted by TORunner at 5:48 AM on November 24, 2014
I agree to go with a no fee card and there will likely be a low limit. If necessary, go with a secured credit card (not pre-paid) but only if necessary. A secured card requires an initial deposit, which you top up with the amount of your purchases that month.From the point of view of your spending habits, it will work the same as a debit card, however it is reported to the credit agencies as if it is a regular credit card. That will get you a better credit rating, which you will need for that line of credit, a future mortgage, etc.
On another note, if you think you might have any need for credit that you will not pay off every month, ask your bank for a line of credit. The interest is much lower than a credit card and it also establishes a credit history. BestBuy said "credit card" but what they want is a credit history: a history of being approved by someone, spending a little money, and paying it off.
A line of credit will also save you the hassle of applying for credit at the various retail shops and allow you to see how much you actually owe as opposed to keeping track of various payments that are due when the one year or eighteen month grace periods are up. You should also be able to finance those purchases more cheaply than the 69.99 "admin fee" from Best Buy.
posted by TORunner at 5:48 AM on November 24, 2014
If you already shop at Loblaws, I recommend the PC Financial Mastercard. I have yet to be charged a fee (or interest, as long as I pay it off in full each month), and the rewards are more generous than most (1%, vs. the equivalent of 0.5% on many others). Redemption is also less of a pain, you just let the cashier know next time you shop for groceries.
As an aside: I wish we didn't have rewards systems at all (they're giving you back your own money, with strings), but I figure if you're paying for it anyways (via increased prices) you may as well take advantage.
posted by Kowh at 12:42 PM on November 24, 2014
As an aside: I wish we didn't have rewards systems at all (they're giving you back your own money, with strings), but I figure if you're paying for it anyways (via increased prices) you may as well take advantage.
posted by Kowh at 12:42 PM on November 24, 2014
As mentioned by others above, your own bank is probably most likely to give you your first cc. Make sure its one with no annual fee.
Other than that, Capital One offers a card for people with no credit history. Then, once you've built up some good credit, consider their platinum card, which offer a rate half of that of most credit cards.
posted by Kabanos at 6:45 PM on November 24, 2014
Other than that, Capital One offers a card for people with no credit history. Then, once you've built up some good credit, consider their platinum card, which offer a rate half of that of most credit cards.
posted by Kabanos at 6:45 PM on November 24, 2014
One more thing: Pick a card and apply for it. Don't apply for more than one at once. Every time someone checks your credit report (there are no ratings in Canada -- the agencies send a report with information about your accounts: what they are, highest balance carried (for credit), credit limits, average monthly balance (not sure how they calculate this for bank accounts, late payments etc.), and number of times and dates the report has been requested by someone from who your applying for credit.
Too many of these credit report requests for credit look bad for you because potential creditors will worry you're applying for a tonne of credit and that maybe you're going to run it up. Other kinds of access of your report (like if a landlord checks your credit before renting) do not show up on the report.
Incidentally, since you've been denied credit, you're entitled to view your credit report for free. There are three big reporting companies. Call each and request a copy of your report. Because the credit agencies don't like to bother, they make it a pain in the butt for you, but you're entitled.
Some credit cards (e.g. my CIBC no fee visa) come with a free service that notifies you any time anything new is added to your credit report. Every now and then I get a robocall telling me there's been a change to my report. I log into the online interface and can see what the change is.
posted by If only I had a penguin... at 7:27 PM on November 24, 2014
Too many of these credit report requests for credit look bad for you because potential creditors will worry you're applying for a tonne of credit and that maybe you're going to run it up. Other kinds of access of your report (like if a landlord checks your credit before renting) do not show up on the report.
Incidentally, since you've been denied credit, you're entitled to view your credit report for free. There are three big reporting companies. Call each and request a copy of your report. Because the credit agencies don't like to bother, they make it a pain in the butt for you, but you're entitled.
Some credit cards (e.g. my CIBC no fee visa) come with a free service that notifies you any time anything new is added to your credit report. Every now and then I get a robocall telling me there's been a change to my report. I log into the online interface and can see what the change is.
posted by If only I had a penguin... at 7:27 PM on November 24, 2014
This thread is closed to new comments.
posted by hoyland at 5:35 PM on November 23, 2014 [13 favorites]