“Credit history“, “credit card” – these words being heard from friends, attract the newcomers. They want just the same. And right they are.
Credit card is a valuable and usable thing. It allows you to make a purchase today and pay for it 5-6 weeks later. It enables you to automatically pay for utility and other services on a regular basis; there is no need to remember this every month. Many people take advantage of a card to shop online or by phone. This payment method is increasingly embedded in our lives.
But there is a “tail”. You may overestimate your abilities, buy more than your income allows and get in debt up to your neck. Interest rates will grow like a snowball, and there exists a probability of becoming bankrupt. In such case, the credit history will be spoiled for at least 5 years. This happened to one of my friends a few years ago. I had just started my financial activities in Canada at that time, and he was one of my first clients. I was seriously puzzled by the presence of increasing debt on his loans and at the same time, a certain amount on a bank deposit. I criticized his strategy and advised him to cool down the ardor of purchases and immediately pay some debts trough deferred funds. He did not follow my advice, and after a while I found out that he was declared insolvent and all his credit cards had been canceled..
To ensure that nothing similar is going to happen to you, the bank will not immediately provide a credit card. You have to live in Canada for some time, earn money and learn to spend it. Different banks vary these requirements. For example, Bank of Montreal gives the card only to those people who have an account there, which is not required in other banks. Living in Canada for half a year and working there for 3 months is a usual requirement for the obtainment of a credit card. The most available are the credit cards at Royal Bank, Citibank and Capital One.
If you don’t want to wait, and you are sure not to ask for social assistance, you can get a credit card right away, making a bail in the bank for 1-2 years (“security” deposit) not less than 1,000. I’ll introduce you to what cards are better to choose in the next article.
© Michael Arbetov, CFP, FMA
Investment and Insurance Advisor