This guide cuts through the noise. You’ll learn how credit scores really work, how to kickstart your credit journey, and how to dodge the traps that wreck your financial reputation. Let’s turn your credit from invisible to impressive.

Understanding Credit in Canada

Credit bureaus in Canada (Equifax and TransUnion) use a numerical scoring system that tracks your borrowing and repayment behaviour. This score is determined by analyzing your credit habits and applying them to their internal algorithms. Having a good credit score is crucial because it demonstrates to lenders your level of financial responsibility.

What is A Credit Score

A credit score is a three-digit number ranging from 300 to 900 that represents your creditworthiness. In Canada, scores are calculated using information from your credit report combined with additional factors.

Credit score ranges include:

• 760-900: Excellent
• 725-759: Very Good
• 660-724: Good
• 560-659: Fair
• 300-559: Poor

Your credit score impacts your ability to get loans, credit cards, mortgages, and rental applications. Higher scores result in better interest rates and more favourable terms.

Note that the range of scores can be quite broad. Someone with a credit score of 775 is essentially on the same level as someone with a score of 885. While it’s important to maintain a good credit score, you shouldn’t obsess over it.

How Credit Works

Credit works as a system of trust between you and lenders. When you borrow money or use credit products, your payment behaviour is reported to credit bureaus on a monthly basis.

Key factors affecting your score:

• Payment history (35%): On-time payments boost your score
• Credit utilization (30%): Keep balances below 30% of limits
• Credit history length (15%): Older accounts improve your score
• Credit mix (10%): Different types of credit show responsibility
• New credit inquiries (10%): Too many applications can lower your score

Lenders review your credit report before approving applications. They examine your borrowing patterns, current debts, and repayment reliability to assess risk.

Types of Credit Products

Canada offers several credit products that help build your credit history when used responsibly.

Revolving Credit:

• Credit cards
• Lines of credit
• Home equity lines of credit (HELOCs)

Instalment Credit:

• Personal loans
• Auto loans
• Mortgages
• Student loans

Secured Credit Products:

• Secured credit cards (require a deposit)

Credit cards are the most accessible starting point for newcomers and young adults. Secured credit cards are a good option if you cannot initially qualify for traditional cards.

Each product type contributes differently to your credit mix. Having both revolving and installment credit demonstrates your ability to manage various financial responsibilities effectively.

Key Factors Affecting Credit Scores

Your credit score in Canada is calculated using five primary components that credit bureaus analyze from your credit history. Payment history carries the most weight at 35% of your score, while credit utilization accounts for 30%.

Payment History

Payment history is the most significant factor in calculating your credit score, making up 35% of the total. This part monitors whether you pay your bills on time and in full. Generally, a single missed payment won’t make a difference, but two consecutive missed payments or two in a 12-month period could significantly impact your credit score. These negative marks can substantially lower your score and can stay visible for up to six years.

Types of payments tracked include:

• Credit card minimum payments
• Loan payments (personal, auto, mortgage)
• Line of credit payments
• Utility bills reported to credit bureaus

Missing payments establish a pattern that lenders see as high risk. The more recent the missed payment, the stronger the negative effect. Multiple missed payments increase the damage and indicate financial trouble to potential lenders.

Credit Utilization

Credit utilization indicates the percentage of your available credit that you’re using. This factor accounts for 30% of your credit score and is the second most significant component.

Your utilization ratio is calculated by dividing your current credit card balances by your total credit limits. For example, if you have $2,000 in balances across cards with a total limit of $10,000, your ratio is 20%.

Optimal utilization guidelines:

• Keep total utilization below 30%
• Aim for individual card utilization under 30%
• Target utilization of 10% or less for best scores

Using more than 30% of your available credit indicates a heavy reliance and potential repayment risk, even if you consistently make minimum payments. Lenders take notice so keep your utilization ratio low. 

Length of Credit History

Credit history length makes up 15% of your score. It’s based on how long you’ve had credit and the average age of all accounts, including closed ones. Opening new accounts frequently can reduce your average account age. That’s why keeping older accounts open, even if they are unused, often benefits your credit score.

Key components measured:

• Age of oldest account
• Average age of all accounts
• Time since account activity

Closed accounts remain part of your credit history for up to 7 years before they are removed from your report. This offers some protection when you close older cards.

Students and newcomers to Canada naturally have shorter credit histories. Building this factor requires patience and consistent credit management over several years.

Recent Applications

Recent credit applications, also called hard inquiries, represent 10% of your credit score. Each application for new credit triggers a hard inquiry that appears on your credit report. Making multiple hard inquiries within a short period suggests you’re seeking credit urgently, which lenders don’t like.

Hard inquiries occur when you apply for:

• Credit cards
• Personal loans
• Auto loans
• Mortgages
• Lines of credit

Each hard inquiry typically reduces your score by 10  points. The impact diminishes over time. In other words, if you practice good credit habits, your credit score will rebound.

Credit Mix

Credit mix accounts for 10% of your credit score and examines the variety of credit types in your profile. Lenders prefer seeing that you can manage different forms of credit responsibly.

Common credit types include:

• Revolving credit (credit cards, lines of credit)
• Installment loans (mortgages, auto loans, personal loans)
• Retail accounts (store credit cards)

A mix of revolving and installment credit shows financial versatility, but it matters less than payment history or utilization. Don’t open accounts just to boost your mix. Stick to credit that fits your needs. A balanced profile builds naturally over time.

Steps to Start Building Credit

Building credit in Canada involves establishing financial products in your name and showing responsible payment behaviour. The three main methods include credit cards, cellular services, and loans, each providing different ways to build your credit history.

Applying for a Credit Card

Credit cards serve as the primary tool for establishing a credit history in Canada. Most major banks offer credit cards specifically designed for newcomers, students and those without existing credit.

Secured credit cards require an upfront deposit that typically matches your credit limit. If you deposit $500, your credit limit becomes $500. This deposit protects the lender while allowing you to build credit history. These are essential for people who can’t access traditional cards.

Getting a Cellular Service in Your Name

Cellphone plans impact your credit history when payments are reported to credit bureaus. Major Canadian providers like Bell, Rogers, and Telus report payment activity to Equifax and TransUnion.

Contract plans usually need credit checks and help build credit more effectively than prepaid options. Post-paid monthly billing establishes a consistent payment history when paid on time.

Opening a Loan

Small personal loans or lines of credit demonstrate your ability to manage installment debt. Credit unions often provide more flexible lending options for those establishing credit.

Personal loans require fixed monthly payments over set terms. Start with smaller amounts like $1,000 to $3,000. Use the funds for necessary purchases or place them in savings while making payments.

Smart Credit Management Practices

Effective credit management involves regular payment habits, strategic use of available credit, and consistent monitoring of your credit history. These practices directly impact your credit score and influence your access to future financial opportunities.

Making On-Time Payments

Payment history makes up 35% of your credit score. Missing payments can drop your score by 60–100 points. Set up automatic minimum payments to avoid late fees, and pay your full balance when possible to skip interest and show strong financial habits.

Key payment strategies:

• Schedule payments 2-3 days before due dates
• Use banking apps to set payment reminders
• Pay twice monthly to reduce average balances

Late payments remain on your credit report for six years in Canada. A single missed payment can affect your score for months.

Managing Credit Limits and Balances

Aim to keep credit usage below 30% per card. Once you’ve established a solid payment history, request annual credit limit increases. Higher limits result in lower utilization, even if your spending remains the same.

Utilization management tips:

• Pay down balances before statement dates
• Spread purchases across multiple cards
• Ask for limit increases every 6-12 months

Avoid closing old credit cards unless they carry annual fees. Keeping accounts open maintains your credit history length and available credit.

Monitoring Your Credit Report

Check your credit report from both Equifax Canada and TransUnion Canada annually. You can access free and paid reports through their official websites.

Look for errors in personal information, account details, and payment history. Dispute inaccuracies immediately as they can lower your score unfairly.

What to review monthly:

• Payment history accuracy
• Account balances and limits
• New accounts or inquiries
• Personal information updates

Think about signing up for credit monitoring services that notify you of any changes in your report. These services help you identify identity theft or errors on your report quickly.

Rebuilding Credit After Setbacks

Credit setbacks like missed payments and collections can lower your credit score, but recovery is possible through strategic actions. Secured credit cards offer a dependable way to show responsible credit use while you work on past issues.

Recovering from Missed Payments

Late payments remain on your credit report for six years in Canada. However, their impact decreases significantly after two years of consistent on-time payments.

Contact your creditors immediately when you realize you’ll miss or have missed a payment. Many lenders will be understanding and can work with you to find a solution that won’t affect your credit score.

If you’ve already missed payments, focus on these recovery steps:

• Make all future payments on time without exception
• Pay more than the minimum amount when possible
• Consider setting up automatic payments to avoid future delays
• Keep accounts open to maintain your credit history length

Dealing with Collections

If you’ve avoided making payments, your debt will eventually be sold off to a collections company. Collection accounts can reduce your credit score significantly and remain visible for six years from the original delinquency date.

If it gets to this points, you’ll need to negotiate with the collection agency to discuss payment options.

Consider these collection strategies:

• Verify the debt is legitimate by requesting validation
• Negotiate a settlement for less than the full amount
• Get all agreements in writing before making payments
• Keep records of all communications and payments

Never ignore collections. They won’t disappear and can lead to wage garnishment or legal action in severe cases.

Getting a Secured Credit Card

Secured credit cards require a cash deposit that becomes your credit limit. They’re specifically designed for people rebuilding credit after setbacks.

Some financial institutions offer secured cards with deposits ranging from $200 to $10,000. Your deposit is refundable when you close the account in good standing.

Key secured card benefits:

• Guaranteed approval regardless of credit history
• Lower fees than many unsecured cards for bad credit
• Graduation options to unsecured cards after 12-24 months

Use your secured card for small, regular purchases like gas or groceries. Pay the full balance monthly and never exceed 30% of your credit limit.

After six months of responsible use, your credit score should begin improving measurably.

Final thoughts

Building credit in Canada is essential if you ever need a loan in the future. Some employers and landlords may even ask you for your credit score, so it’s always best to maintain yours. By managing your credit responsibly, it should not be hard to get an excellent credit rating.

Closing a credit card can affect your credit score, but it depends on various factors. If you have multiple cards, it likely won’t make a huge difference, but it can have a significant impact if it’s your only card.

Comprehending the nuances of how credit scores are calculated can assist you in making informed decisions about whether to cancel a credit card.

How Cancelling a Credit Card Affects Your Credit Score

Cancelling a credit card can influence several aspects of your credit score, including your credit utilization ratio and the length of your credit history. Depending on your situation, your credit score may drop or not change at all.

Credit Utilization

One of the most critical factors in your credit score is your credit utilization ratio. This ratio compares your current credit card balances relative to your total available credit. When you cancel a credit card, you reduce your total available credit, which may increase your credit utilization ratio.

For example, let’s say you have two cards with a combined limit of $10,000 ($5,000 each) and owe $2,000, your credit utilization ratio is 20%. This is perfectly fine, as the credit bureaus consider a utilization ratio of 40% or less to be good.

However, if you cancel one of your cards, your available credit drops to $5,000, making your utilization ratio 40%. That puts you over the recommended utilization rati,o so your credit score could drop.

Length of Credit

The length of your credit history accounts for about 15% of your credit score. This includes the ages of your oldest account, your newest account, and the average age of all your accounts. Cancelling an older credit card can shorten the average age of your accounts, potentially leading to a decrease in your credit score.

It’s best to keep your oldest accounts open when possible. If you’re worried about annual fees, you could ask to be switched to a no-fee card. Credit card switches don’t affect your credit history as it’s not considered a closed card or a new application.

Factors to Consider Before Cancelling a Credit Card

Cancelling a credit card requires careful consideration of several factors, including annual fees, the benefits of keeping older accounts open, and the rewards and advantages associated with the card.

Annual Fees

Annual fees can vary widely among credit cards. Some cards charge high annual fees with plenty of benefits, while others have no annual fee.

If the benefits outweigh the annual fee, it might make sense to keep the card. For example, the Marriott Bonvoy American Express Card has an annual fee of $120, but you get a free night certificate worth up to 35,000 points each year. That free night is worth about $280, which is clearly more than the annual fee.

If the benefits you’re getting don’t outweigh the annual fee, then cancel your card. That said, downgrading to a no-fee card is another option.

Keeping Older Accounts Open

Older accounts can positively impact your credit score by increasing the average age of your credit history. Closing an older credit card account might reduce this average, potentially lowering your credit score.

Unused credit cards still contribute to your overall credit limit, reducing your credit utilization ratio, a key factor in credit scoring.

While keeping your older credit card open is important, it may not make a difference if you have multiple cards with lengthy histories.

Strategies for Minimizing Negative Effects on Credit Score

When cancelling a credit card, it’s important to consider various strategies to minimize potential negative impacts on your credit score. This includes switching to a no fee card, paying down balances before cancellation, and timing the cancellation carefully.

Swapping to a No Fee Card

One strategy involves switching to a no-fee card instead of cancelling your existing credit card. By maintaining the account, the cardholder maintains the length of their credit history and avoids a potential setback in their credit score due to a shortened history. 

A no fee card can help retain available credit, which means your credit utilization ratio remains the same. 

Paying Down Balances Before Cancellation

Before cancelling any credit card, paying down existing balances is recommended. This reduces the reported balance during the statement closing date, directly impacting credit utilization ratios. 

By fully paying off balances or significantly lowering them, the reduction in available credit from closing an account becomes less damaging. It is generally recommended to keep utilization ratios below 30% to maintain or improve credit scores. This step is crucial in preventing a significant drop in credit score after cancellation.

Timing Your Credit Card Cancellation

Choosing the right time to cancel a credit card can also mitigate negative effects. It’s usually best to avoid cancelling cards shortly before applying for a loan or mortgage, as a credit score setback can impact approval chances. 

It also makes sense to cancel your cards right before the next annual fee posts. While this doesn’t affect your credit score, it will have an impact on your wallet.

Reasons for cancelling credit cards

There are various reasons why individuals choose to cancel their credit cards. These can range from high fees to significant life changes and the availability of better financial products. Each reason has unique implications that need careful consideration to ensure minimal impact on one’s credit score.

High annual fees

Some credit cards have high annual fees that surpass their benefits. Cardholders often feel that the cost of these fees is not justified by the rewards or perks offered.

For example, if a card offers 1% cash back but charges an annual fee of $150, someone spending less than $15,000 per year might not benefit. In such cases, cancelling the card can be a cost-saving move.

Better benefits available

Credit cards continuously evolve, and better benefits may become available. This could include lower interest rates, higher cashback percentages, or more enticing travel rewards.

Alternatively, you might have decided that you have different goals for your credit cards. For example, if you plan to travel more, cancelling your cash back card and getting a premium travel credit card could be beneficial.

Access to too much credit

Having access to excessive credit can lead to overspending and elevated balances. Cancelling a credit card can help manage your overall credit more effectively.

By reducing the total credit you can access, you may find it easier to stick to a budget and avoid falling into debt. However, you must also consider the potential impact on your credit utilization ratio, which can affect your credit score.

Final thoughts

While cancelling a credit card can have an impact on your credit score, it likely won’t make a huge difference in the grand scheme of things if you have other active credit cards.

While you should always strive to pay the entire balance each month, it’s also important to understand how minimum payments work.

Credit card minimum payments are typically calculated as a percentage of your balance or a fixed amount, whichever is greater. The percentage required for the minimum payment differs per bank, but it’s typically 3 to 5%. 

Understanding this can help you make more informed decisions regarding your credit card payments and manage your finances better.

Understanding minimum payments

Minimum payments are the least amount you must pay on your credit card each month to maintain your account in good standing. They help you avoid late fees and negative impacts on your credit score, but they can lead to long-term interest charges.

How credit card minimum payments are calculated

Credit card minimum payments can be calculated in two main ways: percentage-based or flat rate. A percentage-based minimum payment is typically a small percentage of your total balance, often around 3-5%. This method includes interest charges, making it more responsive to your account balance.

For example, let’s say your credit card provider has a minimum payment of 2%. If your balance is $5,000 and your card has an interest rate of 21%, your minimum payment would be $100.

In most cases, your bank will also impose a minimum amount requirement, such as $10. They will charge you the greater of the percentage or the flat fee.

Credit card minimum payment calculators

A credit card minimum payment calculator is a handy tool offered by most banks that helps you estimate how long it will take to pay off your credit card balance if you only make minimum payments. It enhances your understanding of the impact of interest over time and can motivate you to pay more than the minimum to reduce your debt faster.

To use this tool, input key details such as your balance, interest rate, and minimum payment. The calculator will then provide insights into the total interest you’ll pay and the time needed to reach a zero balance. 

What happens if you only make minimum payments

Making just the minimum payment on your credit card can lead to significant long-term financial consequences. This strategy often results in much higher interest charges and can adversely affect your credit utilization ratio – which could impact your credit score negatively.

Long-term financial implications

Paying only the minimum required amount each month can keep your credit card debt lingering for years. For example, with a balance of $5,000 and an interest rate of 21%, it could take up to nine years to clear the debt. Throughout this period, the slow repayment hinders your ability to invest or save money, affecting your overall financial health.

Long repayment periods also increase the total interest paid. Typically, minimum payments are determined by a fixed amount or a small percentage of your balance, such as 3%. As your principal gradually decreases, most of your monthly payments go toward interest instead of reducing the principal.

Interest charges and credit utilization

Credit card interest rates can be quite high, typically ranging from 20% to 22%. Paying only the minimum guarantees that high interest charges accumulate over time. These charges significantly increase the amount you owe. For instance, a $10,000 balance at a 22% interest rate may accrue hundreds of dollars in interest charges each year.

Credit utilization refers to the percentage of your available credit that you are using. A high utilization ratio can negatively impact your credit score. Keeping a high balance relative to your credit limit because you’re making only minimum payments can signal to lenders that you might be overextended.

Paying off the entire balance on your credit card each month ensures you’re not paying any interest charges and you’re maintaining a healthy credit history.

Strategies to avoid minimum payment traps

Making just the minimum payment on your credit card can result in significant debt over time. Here are some effective strategies to avoid these pitfalls:

• Pay more than the minimum: Try to pay more than the minimum amount every month. Even a small increase in your payment can greatly reduce the interest accrued and shorten the repayment period.
• Set up automatic payments:  Automate your credit card payments to ensure you never miss a payment. Set it up so that you pay the full amount or more than the minimum amount each month.
• Create a budget:  Create a monthly budget that focuses on debt repayment. By doing this, you can allocate more funds toward paying off your credit card balance and lessen dependence on minimum payments payments.
• Build an emergency fund: Save three to six months’ worth of expenses in an emergency fund. This buffer helps you manage unexpected costs without relying on credit cards.
• Limit additional spending: Avoid adding new purchases to your credit card until the balance is more manageable. This helps you stay focused on reducing existing debt debt.
• Explore balance transfer options: Think about transferring your balance to a card that offers a lower interest rate. This can help decrease the interest you pay and enable you to pay off the debt more quickly.

Frequently Asked Questions

How is the minimum payment calculated on credit card balances?

The minimum payment is usually either a percentage of your balance or a fixed amount, typically around $10, whichever is greater. Always check your credit card statement for the specific method used by your issuer.

Does making only the minimum payment on a credit card cause interest charges?

Yes, making just the minimum payment allows interest to keep accruing on the remaining balance. This can greatly increase the total amount you ultimately pay over time. To prevent excessive interest charges, it’s wise to pay more than the minimum whenever possible.

What are the consequences of only paying the minimum on credit cards?

Making only the minimum payment can result in significant interest costs and prolong the time it takes to pay off your debt. It also raises the risk of accumulating a larger balance, which could make future payments more challenging to manage. 

Does consistently making minimum payments on a credit card impact credit scores?

Yes, consistently making minimum payments can affect your credit score. Although making at least the minimum payment on time helps maintain a positive payment history and avoids late fees, high balances and prolonged debt can negatively impact your credit utilization ratio. 

Determining the ideal number of credit cards

The right number of credit cards for you depends on your financial habits, goals, and credit management skills. 

First, assess your credit score and monthly spending. A strong credit score and a history of on-time payments suggest that you can effectively manage multiple cards. Conversely, if your credit is less than ideal or you find it challenging to keep up with payments, fewer cards may be beneficial.

1-2 Cards

• Simplicity: If minimalism suits your lifestyle, one or two cards make it easier to track expenses and payments. Generally, you want two different card types, such as one Visa and one Mastercard. With this strategy, you’ll likely always have a card that will work at merchants. 
• For building credit: Starting with a single card is the way to go if you’re new to credit or rebuilding. For some people, you may be forced into getting a secured credit card to build/rebuild credit. Once your score increases, you could add a second card for access to more credit and a healthy credit mix.

3-5 Cards

• Maximizing rewards: Having 3-5 cards can optimize rewards and benefits. For example, you could have the American Express Cobalt as your daily spending card, the TD Aeroplan Visa Infinite for free Air Canada checked bags, and the Triangle World Elite Mastercard for free roadside assistance.
• Welcome bonuses: The quickest way to earn points is by applying for new cards that have generous welcome offers. If you can manage your money well, applying for two new cards a year isn’t unusual.
• Credit Utilization: More cards can lead to a lower credit utilization ratio as long as you maintain low balances, positively affecting your credit score. Yes, you could just increase the limit on one card, but having multiple cards is still beneficial if some have no annual fees and good benefits.

The key thing to understand is that every credit card you have should have a purpose. If it doesn’t have a specific purpose, cancel it.

Strategies for managing multiple cards

Effectively managing multiple credit cards requires a focused approach to optimizing rewards, tracking payments, and avoiding debt. The following strategies will help you handle multiple cards.

Optimizing credit card use

To maximize the benefits from credit card rewards, choose the right card for the right purchase. For example, if you have a card offering 5% cash back on gas and another offering only 2%, always use the former to fuel your vehicle. Here’s a simple breakdown of how to allocate card usage:

• Gas purchases: Card with the highest rewards or cash back on fuel.
• Grocery shopping: Card with the highest points on grocery spending.
• Travel expenses: Card with a high earn rate on travel or one with no foreign transaction fees.

Note that if you’re working on a welcome bonus, it often makes sense to put all your spending on that card, regardless of category, to ensure you meet the minimum spending requirement.

Keeping track of payments and due dates

Keeping track of your payments is critical to avoid interest charges and maintain a good credit score. Consider these tips:

• Set up automatic payments so never miss a due date. 
• Always opt to pay the full amount due so you don’t incur interest charges.
• Utilize calendar alerts to remind you when manual payments are due.

Avoiding common pitfalls of multiple cards

While having multiple credit cards is fine, there are still a few things you need to watch for:

• Spending just for the sake of rewards: The rewards you earn will never be worth more than the interest you pay.
• Forgetting to cancel cards: If you’ve signed up for a card just for the welcome bonus, don’t forget to set an alert to cancel it before the next annual fee posts.
• Losing cards: Ensure you have all your cards in a secure place to access them anytime.
• Ignoring benefits: Some cards come with yearly benefits. Use them to maximize the value of your cards.

By implementing these strategies, you can navigate multiple credit cards effectively.

Building your credit score

Regardless of how many credit cards you have, you can use them to build and maintain a strong credit score. Each card affects your credit utilization, payment history, and credit mix so take steps to ensure you have a healthy credit history.

How Credit Cards Impact Your Credit Score

• Credit utilization: Your credit score is significantly influenced by your credit utilization ratio, which is the amount of credit you’ve used compared to your total credit limit. A good credit score requires keeping this ratio below 30%.
• Payment history: Timely payments are crucial, making up 35% of your credit score. Missed or late payments can considerably lower your score.
• Length of credit history: The age of your credit accounts matters. A longer credit history can contribute to a higher score. Hence, keeping older accounts open might be beneficial even if you’re not using them frequently.
• New credit inquiries: When you apply for a new card, a hard inquiry is triggered, which can temporarily reduce your score. Too many hard inquiries in a short time are seen as risky behaviour by lenders.
• Credit mix: Having various credit types, including credit cards, automobile loans, and mortgages, shows lenders you can manage different types of credit.

Tips to Improve Your Credit Score

• Monitor and manage your balances: Always keep track of your spending to ensure you stay well below your credit limits, which helps maintain a low credit utilization ratio.
• Set payment reminders: Pay your bills on time consistently. Automatic payments or calendar reminders can prevent late payments and their potential negative impact on your score.
• Limit new credit applications: Apply for new credit only when necessary. This will limit hard inquiries and prevent your credit history from being comprised of too many new accounts.
• Review your credit reports regularly: Check your credit reports annually for errors and dispute any inaccuracies. Errors can affect your credit score, and you have the right to correct them.
• Be Patient: Building a good credit score doesn’t happen overnight. Continue practicing good credit habits, and over time, you’ll see improvements.

Understanding credit card rewards and fees

Applying for the right number of credit cards involves balancing the benefits of rewards with the cost of annual fees. If you’re getting more value out of the welcome bonus or annual benefits compared to the yearly fee, then getting the card is worth it.

When to Apply for Another Credit Card

Consider applying for another credit card if your current cards do not maximize the rewards on your typical spending categories or if you’re not reaching your financial objectives. You should also consider the yearly benefits you’re getting.

Types of rewards earned

Rewards vary widely, including:

• Cash back rewards: You can earn a percentage of your purchases back as cash. For example, a card may offer 0.5% to 3% cash back on specific or general purchases.
• Points: Accumulate points for each dollar spent, which you can redeem for travel, gift cards, or merchandise.

Rewards are sometimes higher in specific spending categories, like dining or travel, so it’s common for people to have specific cards for certain purchases.

Assessing annual fees

The annual fees for credit cards must be justified by the benefits received. Fees for basic cards start at around $50 and go up to $799 for premium cards with extensive perks. 

Some people are highly against annual fees, but they can be worth it. Consider the following:

• Perks vs. fees: Compare the benefits, such as airport lounge access, credits, and insurance, to the yearly cost.
• Break-even point: Calculate how much you need to spend to recoup the annual fee through rewards. For example, with a $100 fee and a 2% cash back rate, you’d need to spend $5,000 annually just to break even

Final thoughts

Determining the right number of credit cards is a personal decision. At the very least, you should have two cards: one as your main credit card and another as a backup. That said, there’s nothing wrong with having three to five cards, or even more. As long as you manage the cards well and don’t overspend, you’ll be fine. 

However, many people wonder if applying for a credit card hurts your credit score. While it’s true that a new application will result in a minor drop in your credit profile, the reality is that it won’t make a significant difference in the grand scheme of things. But there are things to consider.

Does applying for credit cards hurt your credit score

Applying for a new credit card does affect your credit score, but what changes often surprises you. When you apply, the card issuer performs a hard inquiry on your credit report, typically resulting in a credit score drop of about 10 points. 

While this drop is concerning, it’ll likely be temporary if you pay your bills on time. Additionally, since you’re getting access to more credit, you’d likely lower your credit utilization ratio (the amount of credit you’re using relative to the total credit you have access to), which could improve your credit score.

The best way to look at it is to consider how a new application can increase and decrease your credit score.

It’s crucial to use your new credit card responsibly. The small hit you take when applying is not a big deal. But racking up large balances and missing payments can harm your score significantly. Careful and mindful use of your credit cards will help mitigate any negative impact from the application process.

How credit card applications affect your credit score

When you apply for a credit card, several factors determine how your credit score might be impacted. These include the type of inquiry made, the effect on your credit history, and changes to your credit utilization ratio.

Hard vs. soft inquiries

Credit card applications typically result in a hard inquiry on your credit report. A hard inquiry occurs when a lender checks your credit as part of the approval process. This can cause a small, temporary dip in your credit scores of 10 points.

In contrast, a soft inquiry does not impact your credit score. Soft inquiries happen, for instance, when you check your own credit or when a lender preapproves you for a card. 

The effect of new credit on your credit history

Adding new credit affects your credit history since it’s a new application. As noted, it’s a small hit, so it won’t make a big difference. That said, opening multiple new accounts in a short period can signal to lenders that you are a higher credit risk.

However, responsibly managing your new credit account by making timely payments can positively influence your payment history, which is a significant factor in both the FICO and VantageScore models. Thus, the initial negative impact can be mitigated over time.

Credit utilization ratio changes

Your credit utilization ratio is one factor that determines your credit score. This ratio measures how much credit you use compared to your total credit limit. For example, if your total credit limit is $10,000, and you typically charge $2,500, your credit utilization ratio is 25%. Ideally, you want to keep that limit under 30%.

Applying for a new credit card and receiving approval raises your overall credit limit, which can decrease your credit utilization ratio if your spending doesn’t increase proportionately. This can have a positive impact on your credit scores, but it doesn’t happen right away. This is why a new application temporarily lowers your credit score, but it will recover over time. 

Factors that affect your credit score

Your credit score is influenced by several key factors. Understanding these elements can help you manage and improve your credit profile effectively.

Payment history

Payment history is the most significant factor affecting your credit score, accounting for 35%. Regular on-time payments signal reliability and can significantly boost your score. 

Conversely, missed or late payments can adversely impact your score. Generally, when you have two missed payments in a row, your credit score will see a huge drop. Additionally, the interest rate on your credit card will likely increase.

Credit utilization ratio

Your credit utilization ratio is another significant component. This ratio represents how much credit you’re using relative to the total amount you have available. As mentioned, you want to keep your credit utilization ratio under 30%. 

Paying down balances or asking for higher credit limits helps manage this factor effectively.

Length of credit history

How long you’ve had access to credit is another way lenders can check how responsible you are with credit. Someone who’s had access to credit for years and has used it responsibly will likely have a better credit score than someone new to credit.

In an ideal world, you’ll keep your oldest credit card open since it’ll help with your length of history. That said, if you have multiple cards and the others have been active for years, cancelling your oldest account may not matter.

Recent inquiries

When you apply for new credit, lenders perform a hard inquiry on your credit report. While a single inquiry might result in a minor drop in your score, multiple inquiries within a short period can have a more noticeable impact.

One or two applications a year won’t raise any flags. However, if you’re applying for five cards in a short period, lenders will likely question why you’re seeking so much credit.

Types of credit

Having a mix of different types of credit can benefit your credit score. This could include credit cards, mortgages, auto loans, and wireless services.

Lenders like to see that you can manage various types of credit responsibly. A diverse credit mix contributes 10% to your credit score calculation. However, it’s not necessary to have every type of credit. Focus on maintaining good standing accounts and only get different types of credit if you need them.

Strategies to minimize negative impacts

Managing credit card applications effectively can help you minimize potential negative effects on your credit score. This section outlines some strategies, including timing your applications strategically, exploring soft inquiries and pre-approval options, and evaluating card offers and credit limits.

Timing applications strategically

Limit your applications to one card every few months. Frequent applications can result in multiple hard inquiries, decreasing your score. Plan applications around periods when you won’t be borrowing heavily, as this will reduce the hit on your credit utilization ratio.

Exploring soft inquiries and pre-approval

Many credit card issuers offer pre-approval options that use soft inquiries. These inquiries do not affect your credit score. Taking advantage of these can give you an idea of your approval odds without a hard inquiry.

Look for pre-approval online through your bank or credit card issuer. Although pre-approval does not guarantee approval, it can help you find attractive credit card offers without impacting your credit score. Use these options to apply selectively and avoid unnecessary hard inquiries.

Evaluating card offers and credit limits

When considering new credit cards, evaluate the offers and credit limits carefully. High credit limits can decrease your credit utilization ratio. Choose cards that offer limits which align with your spending and repayment ability.

Occasionally, credit cards offer really good welcome bonuses. These sign-up bonuses are usually worth a few hundred dollars, so taking the credit hit via a new application is usually worth it.

How often should I apply for a new credit card?

Generally, applying for one or two new credit cards each year won’t significantly affect your credit score. That said, it’s worth considering the following before submitting an application:

• Short-term Impact: Each new application results in a hard inquiry on your credit report, which can lower your score by about ten points.
• Long-term strategy: Space out your applications. Applying for a new credit card every six months to a year can help you build credit without too many hard inquiries.
• Financial goals: Align your applications with your financial goals. For example, apply when building credit, consolidating debt, or taking advantage of special offers.
• Credit utilization: Maintain a low credit utilization ratio. Having too many cards can lead to a higher utilization rate, which can negatively affect your score.
• Account management: Ensure you can responsibly manage multiple accounts. Late payments or high balances can hurt your score more than a hard inquiry.
• Consider your credit history: People with newer credit profiles should be more cautious, while those with established credit can afford to apply more frequently.
• Sign-up bonuses: If a sign-up bonus is very attractive and aligns with your spending habits, it might be worth the small dip in your credit score.

By considering these factors, you can make informed decisions on how often to apply for a new credit card without harming your credit score too much.

Final thoughts

Applying for a credit card will have an immediate impact on your credit score, but it’s temporary. Generally, if you pay your bills on time and in full, your credit score will increase back to where it was after a few months.

Prepaid credit cards don’t give you nearly as many rewards as some of the best travel credit cards in Canada, but you don’t need to worry about having a high income or interest charges since you can only spend what you have. Here are my top picks for the best prepaid credit cards in Canada and what makes them unique.

The best prepaid credit cards in Canada

KOHO

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• No annual fee
• $20 for free when signing up with a referral link
• Earn up to 5% cash-back
• 1% cash back on groceries and transportation
• 0.5% interest on your spending and savings accounts with direct deposit set up

Although KOHO uses the Mastercard network, they aren’t technically a credit card. You can still use your card to pay wherever Mastercard is accepted, but your history doesn’t get reported to the credit bureaus, which means it won’t affect your credit score.

So why do people use KOHO? First, you’ll get $20 for free if you use my KOHO referral code CASHMONEY, but most people like KOHO because it helps them keep their spending under control. Obviously, you can only spend what you have preloaded onto your card, but the activity breakdown will help you analyze your spending so you can make adjustments as needed. Best of all, you’ll earn 0.5% cash back on all your purchases at all retailers. 

Some people use the KOHO prepaid Mastercard like a bank account. They set up a direct deposit, so their pay goes right into the account. Alternatively, they can use Interac e-transfers to move money around. With direct deposit set up, your money earns you an interest rate of 1.2%.

I should also mention that there’s also KOHO Premium which is available to all KOHO users for $9 per month or $84 per year. Some people may think it’s weird to pay a monthly fee for a prepaid credit card, but you get extra benefits with the service including extra cash back, no foreign transaction fees, financial coaching, price matching and more.

Wealthsimple Cash Card

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• No annual fee
• Up to $3,000 welcome bouns
• 1% back in cash, stocks, or crypto on all purchases
• 4% interest on deposited funds
• No foreign transaction fees on purchases or ATM withdrawals
• CDIC insurance protection

It may seem odd that I have two credit cards with no foreign transaction fees on my list of the best prepaid credit cards in Canada, but they’re similar, so they both deserve a mention. That said, I prefer the Wealthsimple Cash Card since it has no gimmicks. This card has no foreign transaction fees on purchases or ATM withdrawals. There is a withdrawal fee that the ATM operator charges per use, which is usually around $3. Since this is a prepaid Visa card, you do need to preload funds before you use it. That said, it’s arguably one of the best travel credit cards in Canada.

There’s no monthly or annual fee to get this card, so there’s no harm in getting it. It can also be added to Apple Pay and Google Pay. In addition, you get 1% cash back on all your purchases.

CIBC AC Conversion Card

• No annual fee
• No load or conversion fees
• Load up to 10 currencies with no fees
• 1% cash back on all eligible purchases (until October 31, 2023)

The CIBC AC Conversion Card is a unique prepaid credit card in Canada that was designed with travellers in mind. You can load up to 10 currencies on the card, making it rather convenient if you’re travelling to multiple destinations. What’s fascinating about the CIBC AC Conversion Card is that the exchange rates you get from the site are better than what’s offered in a CIBC branch. This is because the card doesn’t need to worry about paying staff or operating a storefront. They’re focused on just giving you the lowest rates available.

The currencies available include:

• Canadian Dollars – CAD
• US Dollars – USD
• Euros – EUR
• Great British Pounds – GBP
• Mexican Peso – MXN
• Hong Kong Dollars – HKD
• Australian Dollars – AUD
• Japanese Yen – JPY
• Turkish Lira – TRY
• Swiss Franc – CHF

When you sign up with my exclusive referral link, you’ll get $20 for free. In addition, you’ll earn 1% cash back on all purchases. There is one drawback with the card. You’re only allowed one free international ATM transaction per month. When most people travel, they use a combination of cash and credit cards, so it would have been nice if this card offered a few more free ATM withdrawals.

What is a prepaid credit card?

The name prepaid credit card is a bit deceiving. Technically speaking, credit cards aren’t prepaid. You’re essentially getting a loan from your credit card provider with credit cards. They’ll give you an interest-free period that’s at least 21 days. No interest is paid as long as you pay off your full balance before your due date. However, if you don’t pay the full amount or only make a partial payment, you’ll pay interest, which is typically 20% – 24%.

The terms prepaid credit card and reloadable credit card often get used by Canadians, but the proper terminology is prepaid card since you’re not getting access to credit. You’re prepaying a card that uses one of three credit card issuers: American Express, Visa, and Mastercard. When you think about it, they basically function like a debit card but with the benefits of a credit card.

Since prepaid cards don’t give you access to credit, you don’t build your credit score with them. That said, some prepaid credit cards allow you to pay into a service that does report your credit history. If you want to improve your credit score, you’re better off using one of the best credit cards in Canada. 

Do prepaid credit cards offer benefits?

What may surprise people is that many of the best prepaid credit cards in Canada come with benefits. Admittedly, what you get won’t be as impressive as some of Canada’s best travel credit cards, but you’re getting something nonetheless.

Some benefits that come with prepaid cards include:

• Cash back – Some cards allow you to earn cash back on every purchase made. Others have select partners where you earn extra cash back.
• No foreign transaction fees – Many traditional credit cards charge a foreign transaction fee of at 2.5%. There is a prepaid card that waives this fee for purchases and ATM withdrawals.
• Spending insights – Some prepaid cards have an app so you can track your spending.
• Welcome bonus – A few cards offer a small welcome bonus when you sign up. You can get an additional bonus when referring friends with select cards.

How do prepaid cards work?

Since prepaid cards aren’t credit cards, you’re better off thinking about them like debit cards. You can only spend the funds available. Depending on the prepaid card, you’ll be able to use it wherever Visa, Mastercard, or American Express are accepted.

There are two types of cards that you can purchase:

• Prepaid cards with a set amount preloaded – Some people refer to these as gift cards since you can purchase them for specific merchants. Alternatively, you can purchase a pre-loaded American Express, Visa or Mastercard that can be used anywhere they’re accepted.
• Reloadable prepaid cards – With reloadable cards, the balance starts at zero, but you can load funds when you activate the card. These types of cards are good for personal use.

How much do prepaid cards cost?

The fees you’ll pay depends on the type of card. Generally speaking, gift cards – sometimes known as closed-loop cards – have no fees. However, reloadable cards – sometimes referred to as open-loop cards – can have quite a few fees associated with them.

These are the fees to look out for when getting a prepaid credit card:

• Activation fee – A few prepaid cards charge a fee when you activate them.
• Monthly fee – Some cards have a monthly fee. A few prepaid cards have an optional premium service that comes with a monthly fee.
• Inactivity fee – If you don’t use your card in a set time period, some cards will charge you an inactivity fee.
• Load fees – Some cards charge you load fees. How much you’ll pay depends on how you load your card. For example, online, e-trasfer, and in-store.
• Foreign transaction fees – When making purchases in any currency except Canadian dollars, you should expect to pay a fee of 2.5% – 3%.
• Bill payment fee – A few prepaid cards charge a fee if you use your funds to make a bill payment through their platform.
• ATM fees – Some prepaid cards may charge you a fee when withdrawing from domestic and international ATMs. The ATM operator may also charge you a fee.
• Card replacement fee – If your card is lost, stolen or damaged, you may have to pay a fee for a replacement.

While this may seem like a lot of fees, there are quite a few cards, such as KOHO and STACK, that charge minimal fees. Prepaid cards that come with a lot of fees are usually found at grocery stores and gas stations.

Are prepaid cards safe?

Prepaid cards can be safe, but depends on the card and what your definition of safe is. For example, fintech backed cards such as KOHO and STACK are partnered with banks, so your funds are protected in case they go bankrupt. In addition, they have chip and PIN technology that gives you an extra layer of security. You can even freeze your cards via the app if you ever misplace your card.

On the other hand, generic reloadable credit cards and gift cards aren’t the safest product. With gift cards, if you lose them, you’re most likely out of luck. Some reloadable cards have limited security features. By the time you realize you’ve lost your card.

While some prepaid cards offer Mastercard and Visa zero liability coverage, where you won’t be liable for unauthorized purchases, there’s no guarantee that you’ll win your case. 

How to choose a prepaid credit card

Even though there are only a handful of prepaid cards on the market, you don’t want to rush into things. Ideally, you want to consider all the features that matter to you first. Doing so will allow you to narrow down your choices. Here’s what to look out for.

• Fees charged – While some prepaid cards charge no or limited fees, there are others that seem to charge for everything. Read the fine print as you could be charged monthly, inactivity, load, and foreign transaction fees.
• Company owner – There are now a variety of prepaid cards that come from fintech companies. These cards come with an app that can help you manage your card. Be sure to read reviews of the company and app before you make a decision.
• Network used – Every prepaid card belongs to a specific credit card network. If you frequently shop at a merchant that only accepts Mastercard, then getting a prepaid American Express or Visa card is not a good idea.
• Welcome bonus – Some cards give you a sign up bonus when using a referral link. Check above to see what current offers are available and determine the conditions to get your bonus.
• Rewards earned – Although not every prepaid card offers rewards, a few do. Some cards give you a flat cash back rate for every purchase, while others offer an accelerated rate with select merchants.
• Load options – Since you can’t use your reloadable credit card without loading funds first, you want to make sure it’s easy to put money onto your card. Find out what are your options and if there are any associated fees.
• Spend options – Every credit card allows you to spend your money at merchants, but see if there are other ways to use your money. For example, e-transfers, bill payments, or ATM withdrawals.
• Load/spend limits – Some prepaid cards have a set limit for loads. For example, there might be a maximum amount of $5,000. A few cards also have daily spending and purchase limits. This could affect your ability to use your card efficiently.
• Security features – With prepaid cards, your funds are already loaded, so you want to keep that money safe. Some prepaid cards have better security features and insurance than others.

What are the types of prepaid cards?

As you’ve already learned, there are different types of prepaid cards. Each one is designed with a specific user in mind. Which one you choose could affect how you load and spend your funds.

Prepaid Mastercards

Most fintech prepaid cards use Mastercard as their network. Many people in Canada prefer this since No Frills and Costco only accept Mastercard for in-store purchases.

Prepaid Visa cards

Prepaid Visa cards are accepted at any merchant that is on the Visa network. This applies to both in-store, online, and international purchases. Prepaid visa cards are found in gas stations, grocery stores, and pharmacies.

Prepaid American Express cards

Prepaid American Express cards aren’t as popular as Visa or Mastercard, but they are available. American Express sells these cards directly to consumers, so they’re not as easy to get. You would only be able to use this type of prepaid card at merchants that accept American Express

Prepaid foreign currency cards

A few prepaid credit cards are designed for travellers who want to hold multiple currencies on a single card. The best example would be the CIBC AC Conversion Card. The obvious advantage here is that you won’t need to carry a bunch of cash in different currencies while travelling.  Since you preload your funds, you can even lock in rates when they’re favourable.

Gift cards

A gift card is preloaded in advance. Since they’re used exclusively at a specific merchant or network of retailers, they’re not associated with Visa, Mastercard or American Express. That said, you can purchase a prepaid Mastercard, Visa or American Express since they give you more flexibility.

What are the pros and cons of prepaid credit cards?

If you’re considering one of the best prepaid cards in Canada, you need to look at the pros and cons. Remember, every card is different so the advantages and disadvantages will differ, but here’s what you should look out for.

Prepaid credit card pros

• Controlled spending – Since you can only spend what you load, there’s no need to worry about overspending and interest charges.
• No annual fee – Many prepaid credit cards have no or low annual fees.
• Gives you access to credit networks – Even if you have a bad credit score, a prepaid credit card allows you to use the Visa, Mastercard, and American Express networks.
• Some rewards – Reloadable credit cards offered by fintech companies come with some basic rewards such as cash back.

Prepaid credit card cons

• Does not build credit – Most prepaid credit cards do not build your credit score
• Limited welcome offers – Traditional credit cards can come with massive sign up bonuses, but what you get with prepaid cards is limited.
• Low earn rate – While you may get some enhanced rates with select merchants, generally, prepaid cards don’t offer an enhanced earn rate.
• Not many benefits – You’ll only get a few benefits with prepaid cards, whereas regular credit cards can come with travel insurance, mobile device insurance, airport lounge access, and more.

Why use one of the best prepaid credit cards in Canada?

If the best prepaid credit cards in Canada don’t offer nearly as many benefits as traditional credit cards, why would anyone use them? As mentioned, some people may not have a choice because they may have a low credit score. If you’re in this situation, getting a prepaid credit card may be the only way for you to build your credit or make a purchase on one of the credit networks. If you don’t know what your credit score is, you can check your credit score for free with Borrowell.

The other reason some people prefer prepaid credit cards is that it keeps your spending in check. Since you can only spend what you have loaded, you’ll never go into debt, and you’ll never pay interest charges. This is an excellent way of managing your expenses as many people will spend less when they know they only have a fixed amount left. With regular credit cards, you have a pretty high limit, so it’s easy for you to spend more than what you can reasonably afford.

How to get a prepaid credit card

Getting a prepaid card is technically easier than a regular credit card. That said, if you’re applying for a fintech prepaid card, you typically need to be the age of majority in the province you reside and a resident of Canada. If you’re getting a gift card or generic prepaid card, there are usually no requirements at all.

Here’s how and where you can get a prepaid card:

In stores

The quickest way to get a prepaid card or gift card is to find them in stores. Gas stations, grocery stores, and pharmacies typically carry dozens of cards. In most cases, these gift cards have a set amount. For example, $50, $100, $250. You can also get network specific prepaid credit cards which gives you more options.

Online

Fintech credit cards such as KOHO and STACK require you to apply online. Once you’ve applied, a physical card will be mailed to you. You’ll also need to download the app so you can take advantage of spending insights and perks. It’s also possible to order gift cards online, but usually they’ll come in digital form.

At a financial institution

Some banks and credit unions allow you to purchase prepaid credit cards in a branch. That said, many financial institutions have discontinued their prepaid cards. For convenience purposes, you’re probably better off getting a prepaid card online.

Are prepaid credit cards worth it?

It depends on your needs. The best prepaid credit cards in Canada have become incredibly handy in recent times. They have apps that track your spending, and you can get benefits such as cash back and no foreign transaction fees. If you’re worried about your spending, prepaid credit cards can be a good fit since you can only spend the funds that you’ve deposited.

Traditional credit cards give you more and better benefits, but prepaid credit cards still have a place in many wallets.

Many people make New Year’s Financial Resolutions. Who doesn’t want to save more and spend less money, right? The problem is that sticking to your financial goals is a lot harder than making them. If you’re ready to make meaningful changes that will set you up for the long run, consider the following 10 New Year’s Financial Resolutions.

Pay off debt

Focusing on high-interest debt, such as credit card debt, is one sure way to improve your financial health. That’s because it’s hard to get ahead if you’re paying 20%+ interest. One of the best strategies to reduce debt is to apply for a line of credit with your financial institution. These types of loans come with a much lower interest rate. If approved, you can use that loan to immediately pay off your other balances. Now you only have a single loan to worry about, which will significantly improve your financial life.

Save more money

With inflation near all-time highs, it’s becoming harder to save money, but here’s one easy strategy: set up a monthly automatic transfer to your savings account. By doing this, you’re always paying yourself first. It doesn’t have to be a huge amount to begin with. Start with something small, like $25 per month. The idea here is that you won’t even notice the money missing. As time passes, keep upping the monthly amount you’re setting aside. You’d be surprised at how quickly you can save.

Improve your financial literacy

Improving your financial knowledge can be easy with online resources. One great resource is Capital One Canada’s Life and Credit blog – it’s filled with tons of tips and tools to guide you along your financial journey. These blog articles cover a wide range of topics, from what credit card fees are to how to protect yourself from credit card fraud. Each post is easy to digest and is relatable regardless of how old you are or what your financial standing is.

Increase the size of your emergency fund

Saving for an emergency fund is one of the most popular New Year’s financial resolutions. As a great rule of thumb, you should try to have an emergency fund that covers six months’ worth of living expenses (rent, mortgage payments, utilities, food, etc.). As the name implies, you would use this money in an emergency, such as a job loss, major car repairs, or medical issues. While there’s no denying that six months’ worth of expenses is a lot, think back to tip #1. Start small. The money you’re setting aside will help you out if any unexpected expenses come up.

Spend less money

Spending less money is one of the more common financial New Year’s resolutions, but it’s easier said than done. Especially when the costs of gas and groceries have gone up. To help you keep your costs down, start by making an updated budget. Track all your expenses for a month or two to get an accurate view of your spending habits. With this information in hand, you can quickly see which areas could use some improvement. It could be something as simple as renegotiating your cell phone bill or cutting your entertainment expenses and subscription services.

Improve your credit score

Your credit score is a number between 300 and 900. The higher your number, the more creditworthy you are. This is important if you ever need a loan in the future. To improve your credit score, you need to know where you stand first. Credit Keeper from Capital One Canada is a free service that allows you to check your credit score even if you’re not a Capital One customer. Checking your score through Credit Keeper won’t hurt your score and is a safe and secure service that allows you to stay on top of your credit. Paying your bills on time and reducing your debt are two things you can do that could help you improve your credit score.

Stop making impulse purchases

Spending money has never been easier since you can do it with a quick tap directly from your phone. To cut back on impulse purchases, you’ll need to set some rules for yourself. For example, you could tell yourself that you won’t make non-essential purchases of $50 or more without waiting 48 hours. If after that time passes, and you still want the item, then go ahead and buy it. That said, the odds are you’ll realize that it’s something you don’t need, and you won’t want it anymore.

Clean up your credit cards

It’s always a good idea to go through your wallet to see what credit cards you have. You might realize that you have cards you no longer need. At the same time, it’s worth shopping around to see if different credit cards would be better suited for you. If you’re interested in a Capital One credit card, be sure to use Quick Check, an online credit card eligibility checker from Capital One Canada, to find out which one of their credit card(s) you’ll be approved for, before you apply. Quick Check is free for all Canadians and has no impact on your credit score.

Buy a home

Buying a home is one of the most common New Year’s Financial Resolutions that are broken. That’s because buying a home is a substantial financial commitment that isn’t quickly done. Instead of telling yourself that you want to buy a home, focus on something more realistic such as saving a 5% down payment.

Open a savings account

Most people have a chequing and savings account, but if you want to get serious about your money, it’s time to open a Registered Retirement Savings Account (RRSP) or Tax-Free Savings Account (TFSA). RRSPs are designed for retirement savings. You get an immediate tax break on contributions, but you’ll have to pay taxes when you eventually withdraw the funds in retirement. With your TFSA, you don’t get an immediate tax break, but all interest and capital gains made within the account are tax-free. This makes your TFSA an ideal account for both short-term and long-term goals.

The length of time between credit card applications should really be based on your goals, credit report, and what rules lenders have in place. Keep reading to learn more about how long to wait between applying for credit cards

How long to wait between credit card applications

Depending on your credit score, many experts recommend waiting three to six months when applying for new cards. That’s because a hard inquiry is made whenever you apply for a new credit card. By waiting up to six months before applying for a new credit card, your credit score will have time to recover.

While this is solid advice, depending on your situation, there are a few different rules to consider for various credit card issuers.

The same day

As weird as it sounds, it can actually be beneficial to apply for a number of credit cards on the same day. That’s because multiple credit card applications will typically only appear as a single inquiry on your credit history. 

For example, let’s say you applied for the Scotiabank Passport Visa Infinite Card and the Scotiabank Gold American Express on the same day. Even though it would have been two separate credit applications in a short period of time, a credit check would likely only happen once.

90-day rule

Both RBC and American Express have a 90-day rule. This means that if you’ve already applied for an RBC or American Express Card, you won’t be approved for another one within 90 days. To be clear, this applies to each individual financial institution. For example, you could get an RBC and Amex card within 90 days of each other. You just wouldn’t be able to get two cards from the same bank.

There is an exception to this rule. Business credit cards would be counted as a separate application from personal cards, so you could get one of each within 90 days.

Six to twelve months

As mentioned, most experts recommend spreading your applications apart by three to six months to limit the number of hard inquiries on your account. This is likely solid advice since the credit bureaus: Equifax and TransUnion don’t like to see people with too many inquiries or too much credit. They could be seen as red flags and affect your credit score.

12-month rule

The 12-month rule applies to people that are looking to take advantage of a sign-up bonus. Some credit card companies, such as TD, clearly outline that you’re only entitled to the welcome bonus once during a 12-month period. If you’re looking to maximize your rewards credit cards, you need to keep this rule in mind, as it may affect how many times you apply for a new card. It’s worth mentioning that some credit card providers have a 24-month period instead of 12.

Once-a-lifetime

Cardholders may be surprised to learn that some bonuses only apply to once-a-lifetime. When you read the fine print for American Express applications, some cards clearly state that the bonus is a one-time deal. Now how often they enforce this policy is up for debate.  

Does applying for multiple credit cards hurt your credit?

The short answer is yes. Every time you apply for credit, your credit score will typically drop by 10 points. Having too many recent inquiries could also affect your mortgage application. Your lender might wonder why you’re looking for access to so much credit. 

Keep in mind that it’s not just credit card applications that affect your credit score. If you’re applying for new lines of credit or auto loans, that will affect your credit score too.

On the other hand, let’s say your credit score is currently 800+, which is considered excellent. If you made a few recent credit applications, it likely wouldn’t be a big deal, even if your credit score dropped.

Reasons to get multiple credit cards

Now you know how long to wait between applying for credit cards. The next natural question is, why would you get multiple credit cards? Well, depending on your situation, it might make sense to have two, three, or even more credit cards.

You want to diversify

Having two credit cards to make purchases is pretty normal. Occasionally, your credit card might not work at a specific merchant. For example, Costco only accepts Mastercard. In addition, sometimes your card might not work for one reason or another. Having a backup card in your wallet will ensure you always have access to credit.

You want to increase your credit utilization ratio

The amount of credit you use relative to what you have access to is known as your credit utilization ratio. For example, let’s say you have a credit limit of $5,000, and you regularly charge $2,500 to your card. That would give you a credit utilization ratio of 50%, which is considered high. However, if you were approved for another credit card with a $5,000 limit, that would give you a total credit limit of $10,000. As a result, your new credit utilization ratio would be 25%, which is better in the eyes of the credit bureaus.

You want to take advantage of welcome bonuses

Many of the best travel rewards credit cards in Canada offer generous welcome bonuses. Without a doubt, these offers are the quickest way to earn more reward points. Once you have enough points, you could use them for free or discounted travel. Of course, you need to adhere to the rules listed above.

When to avoid applying for another credit card

Even though you now know how long to wait between applying for credit cards, that doesn’t mean you should do so as soon as you’re allowed to again. In some cases, it makes sense to hold off on new applications.

• You need a major loan soon – Many lenders don’t like seeing people who have recently opened new credit lines. They’ll likely wonder why you’re looking to access so much credit.
• You may overspend – Data shows that people spend more when using credit. If you have access to more credit, you may spend more and go into debt.
• You could get banned – Some banks and loyalty programs may consider consistent credit applications suspicious. It’s within their right to ban people to prevent further abuse.

Generally speaking, if you have good credit, then applying for a new credit card every six to twelve months won’t matter. You could even go as early as three. That said, you need to have a reason for applying for a new card. You shouldn’t apply, just for the sake of applying even if there’s an excellent sign up offer.

As long as you maintain good habits, your credit score will usually be in good shape. That said, it’s perfectly normal for things to go down at times based on your regular credit use. Knowing what a good credit score is the first step. You’ll also want to know how to improve it.

What is a credit score?

Your credit score is a number between 300 and 900. The higher your number, the more creditworthy you are. This is important because any lender will look at your number and other personal information to determine if they should lend you money. If you’re a new immigrant or a student, you may not have a credit score at all.

If you ever need any kind of loan in the future such as a mortgage, car financing or a line of credit, you’re going to need a good credit score. Even applying for some credit cards requires a good credit score. Keep in mind that having a good to excellent number can work to your benefit as lenders may offer you lower interest rates or better products.

It’s worth noting that the term FICO score and Beacon score are sometimes used in Canada when referring to credit scores. These are American terms, but are interchangeable in Canada.

What is a good credit score?

As noted above, your credit score is a number that falls between 300-900. There are five distinct ranges that pretty much sum up how your credit profile is viewed by many lenders. Unless you’re already under excellent standing, you should always be striving to improve your credit score. 

Here’s what you need to know about where your credit score falls.

760+ | Excellent

Although the highest credit score is 900, no one has a perfect number. As long as your credit score is 760+, you’ll get access to the best products, interest rates and terms. To be clear, it doesn’t matter if your number is 761 or 899, it’s viewed as the same to lenders. Getting your number this high means you’ve been using a variety of credit products responsibly for some time so good on you.

725 to 759 | Very good

Falling in the very good range may disappoint some people since it’s not excellent, but you’ll likely still have no problem qualifying for the best rates. So why isn’t your credit score higher? There could be a variety of reasons for this, so check below for tips on how to improve things.

660 to 724 |  Good

The good range is where things become a little bit complicated. It’s not like lenders will give you an instant no, but they may look at your additional information such as your income and debt-to-income ratio a little closer. It’s also possible that you won’t get the best rates. You probably had a few minor credit issues in the past which is why you only have a good standing so making sure you have good credit habits moving forward is a good idea.

560 to 659 |  Fair

The term fair might be a bit generous as this is where people start to encounter problems when trying to get a loan or credit card. Some credit card providers won’t even consider you for some of their products if your credit score is far. Getting a loan is still possible, but you’ll unlikely get the best rates and you might even need a co-signer.

300 to 559 | Poor

Unfortunately, if you have a poor credit score, the odds of you getting approved for any type of loan are low. Keep in mind a low numbercould also scare off potential landlords and even employers. Your goal right now should be to improve your credit.

How is a credit score calculated?

Okay, now that we know what is a good credit score, you’re probably wondering how it’s calculated. It’s based on just five different factors, each having its own weighting. Once you know the following factors, you can easily take the steps to improve your credit score.

Payment history – 35%

When it comes to figuring out how is a credit score calculated, your payment history counts for a whopping 35%. This should be obvious as lenders want to make sure that you’ve actually been making payments on time. As long as you’re paying your bills on time (preferably in full), you’ll be in good standing. Even if you miss one payment, it usually won’t be a big deal as lenders know sometimes you forget. When you miss two payments in a row, that’s where you’ll start running into trouble.

Amount owed – 30%

As you can imagine, the credit bureaus would be concerned about the amount of credit you’re using relative to what you have available to you. This is known as your credit utilization ratio. The lower the number, the better your credit score. 

Length of credit history – 15%

Although it counts for just 15% of your credit score calculation, the length of your credit history still matters. In an ideal world, you would have started building credit early by signing up for a cell phone plan or getting a no fee credit card in your own name. Simply getting those at a young age will help you. For those who have relied on family cellphone plans or a joint credit card, they may find out later in life that they have no credit history which would mean their credit score is low even though they may be using credit responsibly.

Types of credit  – 10%

Having different types of credit available shows the credit bureaus that you can manage your money well. For many people, the types of credit they use may just be a credit card and monthly payments such as your cell phone bill. Once you introduce other forms of credit such as a student loan, mortgage, line of credit, etc., then credit bureaus have a clear picture of how you handle your money.

New credit – 10%

Although new credit applications only count towards 10% of your credit score calculation, it’s the one thing you have control over. Whenever you request more credit, a “hard inquiry” is performed which results in your credit score dropping a few points. This normally isn’t a big deal but if you apply for multiple credit cards in a short period of time, you could see a decent drop in your credit score. 

It’s also worth mentioning that even though I have the percentages listed above, it’s more of a rough estimate. The credit bureaus no longer say exactly what their formula is when determining what is a good credit score.

Remember, there are two credit reporting bureaus in Canada. It’s not unusual for your credit score to be different with each bureau since they have different reporting criteria. If there is a major difference between your Equifax and TransUnion credit scores, you should investigate a little just to ensure everything looks right.

How to get your free credit score

Before you can take the steps to improve your credit score, you need to know how it works first. Fortunately, you can get your credit score for free with Borrowell. Checking your free credit score will not affect your number, so you can check as often as you like. That said, checking every day is not something healthy to do.

It’s important to understand that your free credit score is different from your free credit report. Your credit score is simply a number to determine your creditworthiness. As for your credit report, it’s a detailed look at what types of credit you currently have open or have applied for in the last seven years.

Who are the credit bureaus?

In Canada, there are two credit bureaus: TransUnion or Equifax. Since they’re two different companies, you’ll have two different credit scores. To make things even more annoying, not all forms of credit report to both bureaus. That means a credit card you have may report to TransUnion but not Equifax.

It’s a good habit to get your free credit score with each of them at least once a year. You’ll also want to order your free credit report from each every year too so you can check for any errors or suspicious activity.

If you do see any errors on your report, you need to investigate it right away. Sometimes it can be a simple mistake, but it can also be a sign of fraud. Opening a dispute and getting things straightened out can take time which is why you want to catch these things early so there’s no additional damage to your credit score.

How to improve your credit score

By now, you should know what a good credit score is and how is a credit score calculated. With these two things in mind, it’s actually pretty easy to improve things. It may not happen right away, but your credit score will definitely go up if you do the following.

Settle any bills in collections

If you’ve let any old debt go to collections, you need to clear it first before you can start improving your credit score. Tracking down who you owe may be the tricky part. Check your credit report with Equifax and Transunion to see if they know who currently owns your debt. If they don’t have that information, you’ll need to contact the original merchant first to see who they sold your debt to. When paying off this debt, make you get a receipt saying that the debt has been cleared.

Pay your bills on time

This should be obvious, but pay your bills on time. I’m talking about all your bills, not just your credit card bills. For example, let’s say you have a bill from a store that you’ve been neglecting, that store could potentially send what you owe to collections which would greatly affect your credit score. Always pay your bills on time and try to pay off the entire bill. At the very least, always pay at least the minimum amount.

Lower your credit utilization ratio

Even if you pay your bills on time every month, a high credit utilization ratio can negatively affect things. For example, let’s say you typically carry a balance of $1,000 and you have a credit limit of $2,000. Your credit utilization ratio would be 50% which is high.

To lower that, you could use your credit card less or get a credit limit increase. Alternatively, you could get a new credit card. Let’s say you do go the new card route and you get one with a limit of $2,000, your total credit available would now be $4,000 and your credit utilization ratio would drop down to 25% which is much better.

Don’t cancel your oldest credit card

Since the length of your credit history affects your credit score, you’ll want to keep your oldest credit card active. You don’t even need to make any purchases with it, you just need to keep the account open. If you’re not using the card, and it currently has an annual fee, ask your provider to product switch you to a no fee card as it won’t affect your credit history and you won’t have to pay any yearly fees.

Monitor your credit

Even if you’re doing everything right and you have an excellent standing, you still need to monitor your credit for any errors or fraud. The last thing you want is to be a victim of identity theft as it can ruin your credit score. Checking your credit card statements every month and getting your credit report every year will help you catch any potential fraud before it becomes a bigger problem. 

Avoid too many credit applications

There’s nothing wrong with applying for new credit, but since it results in your credit score dropping 10 points with every application, you’ll want to limit how often you do it. If you plan on getting a mortgage soon, make sure you’re not applying for too many credit cards in advance as potential lenders will wonder why you’ve been requesting access to so much credit.

How to rebuild your credit history

For those who have gone through bankruptcy or have had some debt go to a collection agency, rebuilding your credit will be a long process. First off, understand that any account in collections will remain on your credit report for seven years before it drops off. That means a mistake you made almost a decade ago could still haunt you.

That may not give you a lot of hope, but there are a few things you can do to put you back on the right track.

Get professional help

If your debt is getting out of control and you’re stressed out all the time, it’s probably worth speaking with a licensed insolvency trustee who can see if it makes sense to declare bankruptcy or to get a consumer proposal.

Contact the collection agencies

If you’re in a position to make payments, contact the collection agency that currently owns your debt. Negotiate a settlement that works for you and start making payments. Make sure you get proof of your payments and ensure that your debt is shown as paid in full to the credit bureaus when you make your last payment.

Get a secured credit card

If your credit score is in the poor range, the best way to improve it is by using a secured credit card. These credit cards require you to put down a security deposit that can’t be used to pay off your balance. You’ll be given a low limit, but as you make your payments, your credit score will go up. Once you get into fair standing, you can try applying for a travel or cash back credit card to earn more rewards. You may also want to consider a secured credit card since it could help improve things.

Refresh Financial

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• $12.95 annual fee
• $3 monthly maintenance fee
• Approval without credit check
• Build your credit score

Don’t rush things

Rebuilding your credit history takes time so don’t expect to see results overnight. If you ever come across an advertisement that says they can fix your credit score right away for a low price, avoid it as it’s for sure a scam.

Check your credit score

Normally I wouldn’t advise checking your credit score on a regular basis, but if you’re starting the process of rebuilding your credit, checking once a month doesn’t hurt as you can see your progress. Remember, you can check your credit score for free with Borrowell.

Final thoughts

Knowing what is a good credit score is can help you throughout life as it can put you on your path to financial independence. As I’m sure you know by now, credit scores don’t need to be something scary as you do have some control over how you rank. That said, maintaining it in good standing is vital since lenders will always look at it if you ever need a loan.

Generally speaking, you always want your credit score to be as high as possible when applying for a credit card. That said, since various factors are involved during the approval process, you must look at the whole picture.

What is a good credit score?

Before you get obsessed with what credit score is needed for a credit card in Canada, you need to understand how credit score ranges in Canada work. 

Your credit score is a number between 300 and 900. The higher your number, the more creditworthy you are. Your credit score is ranked based on which category your number falls under.

• Poor – 300 – 559
• Fair – 560 – 659
• Good – 660 – 724
• Very good – 725 – 759
• Excellent – 760+

The two major credit bureaus: Equifax and TransUnion, determine your score based on your credit history. This would include payments from credit card issuers and mortgages. You can check your credit report and score for free via Borrowell. 

What credit score is needed for a credit card in Canada?

Every credit card company will have different criteria when determining your creditworthiness, but in most cases, you’ll need a minimum credit score of at least 660. This would put you in the good standing range.

Those with excellent credit scores usually won’t have too many issues when filling out a new credit card application. Their chances of approval are high.

That said, there are a few types of credit cards that will approve you even if you have a score range of just 600 – 659. Even though your credit score would just be considered fair, you might still be approved.

What some borrowers may not realize is that you can still get approved for a credit card even if you have a poor credit score. A secured card requires a security deposit, which acts as their credit limit. This benefits cardholders as it’ll allow them to rebuild their credit score.

What other factors affect credit card applications?

Too often, people focus on what credit score is needed for a credit card. While your credit score is essential, some other factors can also affect your application status:

• Annual income – Credit cards are tiered. Some of the best credit cards have an annual income requirement of $80,000 – $100,000. If your income doesn’t fall in that range, you won’t qualify for the card.
• Available credit – Some banks don’t like you having too much available credit. For example, if you already have a credit card with a financial institution, they may not approve you right away for another credit card.
• Length between applications – A few financial institutions don’t like it when you apply for multiple credit cards within a short period of time. For example, they may not approve you if you applied for another credit card within the last 90 days.
• Personal information – When applying for a credit card, some banks may want to verify the information you’ve entered before approving you.

What determines your credit score?

Since your credit score is a significant factor that will determine your chances of approval, you should strive to improve yours. You can do so by examining the five factors that affect your credit score.

• Payment history – By making your payments for your purchases on time, you can improve your credit score. Avoid missing any payments at all costs.
• Amount owed – The amount of credit you’re using relative to the amount you have access to is known as your credit utilization ratio. The lower your credit utilization rate is, the better it is in the eyes of the credit bureaus.
• Length of credit history – The longer you have credit accounts open, the better. That’s because the credit bureaus will be able to see a history of your credit use.
• Types of credit – Generally, credit bureaus like to see people with access to different types of credit, such as credit cards, mortgages, cell phones, and other loans.
• New credit applications – When applying for new credit, your credit score will decrease by a few points. In addition, credit bureaus don’t like it when people apply for multiple forms of credit in a short period.

Recommended credit cards for different credit scores

Now that you know what credit score is needed for a credit card, you can consider one of the following credit cards:

Scotiabank Passport Visa Infinite* Card

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• $150 annual fee
• 40,000 Scene+ points when spending $2,000 in the first 3 months
• 10,000 points when spending $10,000 in the first six months
• Earn 3 Scene+ points per $1 spent at Empire owned supermarkets
• Earn 2 Scene+ points per $1 spent on eligible grocery stores, dining, entertainment, and daily transit purchases
• Earn 1 Scene+ point per $1 spent on all other eligible purchases
• Visa Airport Companion Program membership + 6 passes per year
• No foreign transaction fees

For those with a credit score of 660 or higher

The Scotiabank Passport Visa Infinite Card is the best all-in-one travel credit card. It comes with a generous welcome bonus, has no foreign transaction fees, and you get airport lounge access. In addition, this card earns you Scene+ points, which can be redeemed for various things, such as travel, groceries, and movie tickets.

Tangerine Money-Back Card

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• No annual fee
• 10% cash back up to $1,000 in spending ($100 cash back) for the first 2 months
• 2% cash back on up to 3 categories
• 0.5% cash back on all other purchases

For those with a credit score of 600 to 659

The Tangerine Money-Back Credit Card has a slightly lower credit score requirement. What makes this card good is that you get to choose up to three categories where you’ll earn 2% cash back. All other purchases would give you 0.5% cash back. While this card is pretty basic, the rewards are easy to understand, and there’s no annual fee.

KOHO

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• No annual fee
• $20 for free when signing up with a referral link
• Earn up to 5% cash-back
• 1% cash back on groceries and transportation
• 0.5% interest on your spending and savings accounts with direct deposit set up

For those with a credit score of 599 or less

KOHO is a prepaid credit card, so you’ll be guaranteed approval regardless of your credit score. If you want to improve your credit score, you can sign up for KOHO’s optional credit building service. It’ll cost you $10 a month, but at least you can rebuild your credit history.