Credit cards are a useful financial tool for many Canadians. They can help you build credit, pay an unexpected or emergency expense and facilitate daily spending among many other things. In addition, credit cards are one of the most commonly used financial products. If you’re interested in getting a credit card, below is a step by step guide on how to apply for a credit card along with tips to get approved.
The Credit Card Application Process
Below is a step by step process to apply for a credit card. Whether this is your first time applying for a credit card or your fiftieth time applying, you can learn how to make a strategic financial decision for your personal finances.
Identify What Type of Credit Card User You Are
Credit cards weren’t all made equal. In order to find the best credit card for you, you will need to identify what kind of credit card user you are. There are three main types of credit card users as described below.
Credit Builder Credit Card User
Anyone who is attempting to build or rebuild their credit is known as a credit builder. Usually credit builders have recently immigrated to Canada, experienced financial struggles recently or have a poor credit score. Credit builders typically need to apply for a secured credit card before moving forward with other credit cards. Secured credit cards require a deposit which becomes the card’s limit and can then be used to build credit.
Revolver Credit Card User
In the credit card world, revolving credit card users carry balances from one month to the next, hence the word revolving. The credit card user will pay down the balance over time. Since the balance is carried forward, it is ideal if the borrower can snag a low interest rate. This is because the borrower will be paying interest on the remaining balance every month which can become costly.
Transactor Credit Card User
A transactor credit card user is the exact opposite of a revolving credit card user. These types of credit card users pay the balance in full at the end of every month to avoid paying interest. Because the borrower pays the balance in full every month, they can take advantage of credit card rewards since interest costs are eliminated. However, sometimes those credit card perks come with fees.
Determine Your Eligibility for Credit Cards
Credit card lenders perform a credit check every time you submit an application. Credit checks from lenders and other third parties negatively impacts your credit score. For this reason, you should only apply for credit cards that you genuinely have a chance at getting approved for.
Some lending institutions provide minimum requirements for their borrowers that can be assessed before you apply. By considering minimum requirements, you will ensure that you don’t apply for a credit card that you will automatically get denied for. Below are some additional criteria to consider.
Sources of Income
Rewards and cash back cards tend to have minimum income requirements. Most banks consider the income of the applicant only, while others will consider the combined income of a household.
Your credit score plays a major role in all your personal finances and borrowing, including credit cards. Knowing your credit score can give you an idea of what types of credit cards you will be eligible for. If your credit score isn’t the greatest, you probably won’t get approved for the highest valued credit cards out there. Also, you can work on giving your credit score a boost before you apply to put your best foot forward with credit card issuers.
Residential Status and Age
In Canada, you must be a Canadian resident and the age of majority in your province to obtain a credit card. Usually this age is either 18 or 19, check your province’s age of majority if you’re unsure which age is applicable to you.
Select a Credit Card Type
Once you’ve determined what type of credit card user you are and that you have basic eligibility, it’s time to pick some actual credit card candidates for comparison. When you start doing research, you’ll notice that there are tons of credit cards to choose from. Below are some basic credit card types to be aware of when starting your research.
- Balance Transfer Credit Cards. These credit cards offer an introductory period with no interest. Once the introductory period is up, full interest kicks in. Balance transfers are typically used to pay off debt.
- Low Interest Rate Credit Cards. For those who are revolvers, this is the card for you! Low interest rates are ideal because you’ll be carrying the balance from month to month.
- Cash Back Credit Cards. Wouldn’t it be nice if you could earn money while you spend? With cash back credit cards you can! These cards work by giving the borrower a specified percentage back of what they spent in a month.
- Travel Rewards Credit Cards. If you have the travel bug, these types of credit cards help you travel where you want for less money and sometimes for free. Be sure to read the fine print with these cards to understand what perks you’ll get exactly.
- Other Rewards Credit Cards. If you aren’t in a position to travel, you can still get rewards on dining out, retail, groceries, gas and entertainment.
- Secured or Prepaid Credit Cards. These credit cards are designed for individuals with no credit or poor credit. They help these individuals build credit so they can access more financial products in the future.
- Student Credit Cards. Students may not be able to afford all of the fees, high interest rates and other costs associated with using a credit card. Student credit cards work around these issues, but typically do not offer other perks.
Compare Credit Card Options
Before moving forward with a credit card, it is wise to compare your options to ensure you get the most amazing deal. Below are some questions to ask during the comparison process.
- Which credit card has the lowest annual fee?
- Which credit card has the lowest interest rate?
- What other fees are applicable when using the credit card?
- Are there other perks to working with the financial institution?
- What non-monetary benefits does the credit card offer?
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Complete Your Application
Now you have your sights set on a credit card that will work for you, it’s time to apply, finally! The quickest and easiest way to apply for a credit card is online, but you can also mail or fax your application, apply over the phone or visit the financial institution in person to complete your application. Keep in mind that applying using any method other than online will be much more time consuming.
Each application requires different information from the borrower, however, below is some basic information you can expect to submit with your application.
- Personal information, such as your name, address, email address and phone number
- Rent or mortgage payment amounts
- Occupation and current employer
- Annual income
- Spouse’s or total household income
- Social insurance number
Wait for Approval
You submitted your application, now it’s time to wait for approval. Approval can take a couple minutes if done online, unless the credit card provider needs more information from you. If additional information is needed, it can hold up the process for several days. If you applied using another method other than the internet, the process can take several days or weeks.
What to Do When You’re Declined
If you weren’t approved for a credit card, figure out why so you don’t make the same mistake again. Below are some common reasons for credit card non-approval. If none of the below are the reason you got declined, reach out to the lender to find out why.
- Do not meet the credit card’s minimum income requirements
- Information on your credit card application does not match your credit report
- You aren’t a Canadian resident or the age of majority
- Your credit score is too low to qualify for the credit card
Being declined for a credit card, or anything for that matter, is never fun, but it also isn’t the end of the world. Perhaps you applied for a credit card that was slightly out of your reach for your current financial position, and that’s okay! The important thing is that you learn from your financial mistakes. When you apply for another credit card, consider the reason you got declined and work on your personal finances to get approved the next time around.
Applying for a credit card does take some time, consideration and research. However, picking the correct credit card for your needs is worth the initial investment because it will suit your lifestyle best. If you get declined, remember that it’s not the end of the world and the problem was likely that you applied for a credit card that wasn’t best for your needs. At the end of the day, always consider your financial goals and current financial position when making a personal finance decisions!