A credit card can help you manage your cash flows and can allow you to pay for expenses without having to put up the cash for it immediately. When applying for a credit card, one of the most important components is your credit score – a numerical value between 300 and 900 that represents a borrower’s creditworthiness. This value is calculated based on the individual’s credit history which includes considerations for the number of open accounts, total debt, and payment history. From the lender’s perspective, a borrower’s credit score is the likelihood that the borrower will be able to repay their debt on time.
What Credit Score Do You Need To Get A Credit Card?
There is no ‘magic’ credit score needed to be approved for a credit card. It ultimately depends on the specific card provider and the requirements for each card (premium cards will usually require a higher credit score). In Canada, most card providers view a credit score of 650 as satisfactory and those with credit scores above this level should have no issues being approved for a credit card. However, those whose credit score falls below the 650 mark may find it more difficult to qualify for premium options.
One thing to note is that you have more than one credit score. The two main credit bureaus in Canada are Equifax and Transunion, and they both have their own formula to calculate an individual’s credit rating. You can request one credit report for free every 12 months. Credit card providers tend to poll one or the other, so you can research which credit bureau they pull from to know whether you are likely to qualify.
How Your Credit Score Affects Your Ability To Get A Credit Card
Your credit score is a large factor in the likelihood of approval for a credit card, as well as the credit limit and benefits you will receive. Below is a table displaying whether or no you’ll have difficulty getting approved for new credit based on each credit score range:
|Credit Ranges||Level||Approval and Type of Credit|
|900-760||Excellent||If you have ‘excellent’ credit, it is very likely that you will be approved for all types of credit, including loans and mortgages.|
|759-725||Very Good||With ‘very good’ credit, you will also have no trouble qualifying for the loan and credit products you want and need.|
|724-660||Good||Having ‘good’ credit will allow you to qualify for most types of credit but it is unlikely you will qualify for the lowest interest rates.|
|659-560||Fair||With a ‘fair’ credit score, it is likely that you will face some difficulties when applying for most credit products and will have to build up your rating first.|
|559-300||Poor||It is very unlikely that you will qualify for any credit products with a ‘poor’ credit score and you will have to build up your rating. You may qualify for retail credit cards and prepaid credit cards.|
There are many different ways to build your credit score. For example, you can make sure that all your payments are made on time (this accounts for 35% of your credit score), by paying your balance off in full each month and by keeping your credit utilization ratio low.
Credit utilization is the balance on one account at a single moment in regards to the account’s credit limit. For example, a balance of $5,000 on a credit card with a $10,000 limit would equate to a credit utilization rate of 50% for that account. Typically, it is advised that consumers use less than 30% of their total available credit.
Factors That Affect Your Ability To Get A Credit Card
Credit card issuers will also look at other factors besides your credit score when reviewing your application. One of the most important considerations is your income – whether or not it is a steady source of income that is sufficient to pay back your debt. Card providers will also consider how you have utilized previous credit accounts. Even with a good credit score, it is still possible for your credit card application to be denied if you have too much existing debt or limited credit history.
Additionally, lenders will consider an applicant’s credit history which provides a more holistic view of long term credit tendencies rather than just a single score or rating. Credit history includes detailed reports of whether previous debts have been paid in full and on time, and whether the debtor tends to keep a balance on their credit cards.
Usually, credit card providers prefer to offer credit to those who are employed full time. Students, retirees, part-time workers and self-employed workers may find that they are eligible for lower credit amounts and have limited options in regards to which credit card they qualify for.
Best Credit Cards For Your Credit Score
|Credit Card||Interest||Annual Fee||Credit Score Required|
|Best BMO Cash Back Credit Card||19.99%||$0||Fair to good|
|WestJet RBC World Elite Mastercard||19.99%||$119||Good to excellent|
|Refresh Secured Card||17.99%||$12.95 (+$3/month for maintenance)||No minimum|
|Koho Prepaid Visa Card||–||$0||No credit checks|
|Capital One Venture||17.24% – 24.49%||$95||Very good to excellent|
What Kind Of Credit Card Can I Get If I Have Bad Or No Credit?
Those with a credit score below 650 will likely find it difficult to be approved for premium cards. However, there are a few different types of cards that you can still qualify for that may help you build your credit score.
Retail Credit Cards
One option is to apply for a retail credit card. A retail credit card is an offering created when retailers partner up with banks or banking networks to provide a credit service. Typically, retailers are less stringent on credit ratings and there have even been cases where they do not conduct a credit check at all. Getting a retail credit card can also entitle you to discounts and loyalty rewards programs as long as you keep your account in good standing. A downside to retail credit cards is that interest rates tend to be higher, which will increase your interest expense if you do not have the cash flow to clear the account balance each month.
Prepaid Credit Cards
Prepaid credit cards are another alternative for those with low credit scores. These cards require the cardholder to top them up with cash before any purchases can be made. After funds have been added to the card, it can be used just like any other credit card. However, prepaid credit cards will not help you build your credit as it is not a credit product.
Student Credit Cards
Students may want to consider applying for a student credit card. These cards are designed for full-time students and have less stringent qualifications and requirements. Although they tend to come with lower credit limits, it can help the cardholder build their credit while they are still in school.
Secured Credit Cards
Those with poor or limited credit history can also consider secured credit cards. A secured credit card will require the cardholder to provide a deposit which becomes the account’s credit limit. If the cardholder fails to make payments, the lender will simply use the deposit to pay off the balance. As secured credit cards are considered to be a credit product, they can help to build or repair credit.
While credit scores are very important and play a large part in the credit card application process, it is not the only deciding factor. There are many different types of credit cards (or alternatives) that suit individuals with varying financial situations. As always, it is important to do some due diligence to figure out what options work best for you, and to spend within your means even when approved for credit. Looking for the best credit card for your lifestyle? We can help.Get Started
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