Credit Cards
Credit Cards: What You Need To Know
Pros & Cons of Establishing and Using Credit
Advantages:
- Able to buy needed items now
- No need to carry cash
- Creates a record of purchases
- More convenient than writing cheques
- Consolidates bills into one payment
- Reward programs
Disadvantages:
- Interest (higher cost of items)
- May pay additional fees
- Financial difficulties may arise if one loses track of how much has been spent each month
- Increased impulse buying may occur
How do lenders choose whom to give credit to?
How do they decide what a person’s credit limits should be?
They use the Three Cs
Character - will you repay the debt?
- Have you used credit before?
- Do you pay your bills on time?
- Do you have an established credit report that is in good standing?
- Does your credit report show a willingness to repay debt in a timely fashion?
- How long have you lived at your present address?
- Do you own a home?
Capital - what if you don’t repay the debt?
- What property do you own that can secure the loan?
- Do you have a savings account?
- Do you have investments to use as collateral?
Capacity - can you repay the debt?
- How long have you been at your present job?
- Is your job stable?
- What is your salary?
- What current debts are reported to the credit bureau?
- How many other loan payments do you have?
- What are your current living expenses?
Your Credit Responsibilities
- Borrow only what you can repay.
- Read and understand the credit contract.
- Pay debts promptly.
- Notify creditor if you cannot meet payments.
- Avoid buying on impulse.
- Report lost or stolen credit cards promptly.
- Never give your card number over the phone unless you initiated the call or are certain of the caller’s identity.
Building Your Credit History
- Maintain stable employment.
- Pay all bills by or before the due date.
- Open a chequing account and do not bounce cheques.
- Open a savings account and make regular deposits.
- Apply for a local store credit card and make regular monthly payments.
- Apply for a small loan using your savings account as collateral.
- Apply for a loan with a co-signer, if necessary, and pay back the loan as agreed.
