Disclaimer: I am not a financial advisor. This post is my opinion based on my experience and observation. For more information, click here.
I remember when I first moved to Canada and I spoke to an account manager when trying to set up a Canadian bank account and she was asked what credit card I wanted, I said I do not need one. She was stunned as it is probably something she does not hear often. She assured me that I can always come back whenever I change my mind.
My reasoning behind my decision was based on how things work in Nigeria where people do not buy things on credit, it is either you buy it outrightly (you must have the money to buy whatever you want to buy) or not. Whether it is a mobile phone, house, land, car, wristwatch, whatever it is you pay outrightly. You run away from debt. While living in the UK, I had no need for a credit card, I was not even sure if I was even entitled to one. For more on what is like living in 3 continents, read here.
I shared with my friend how I turned down a credit card and he said you will still need it. I said no, I won’t with so much confidence. Of course, there is another option to credit card which is the virtual debit. It is linked to your bank account and you can make purchases online. This option usually made me second-guess using the virtual debit card as it had no fraud protection. Amidst the second-guessing, I still felt pretty confident that I did not need it.
The more I got myself immersed in Canadian society I realized I need a credit card. A simple task like paying for a phone bill was becoming difficult and if I showed at my cell service provider’s kiosk, they would only let me pay my phone bill except with my credit card. Whenever I took a cab, I got charged an extra $1 because I was using my debit card. Online shopping was becoming a nightmare as the majority of Canadian outlets would only take credit cards or PayPal. I would then have to rely on my friends to make purchases online.
So do I need a credit card?
Yes, everyone needs a credit card whether you use it or not, it is up to you. First of all, a credit card helps you to build your credit score. In a developed society, that is an important aspect that helps you purchase a mortgage, borrow money and access better financial deals. When I was looking to rent a home in Canada from Nigeria, a lot of the landlords were expecting me to show my credit score which limited the available housing options.
The beauty of using a credit card is the cashback. Cashback is a reward for using your credit card. So whenever you are choosing a credit card look at what your options are, in terms of interest – Do you like going to the movies? Do you travel often? Do you rent a car often? Do you shop often? Let your interests guide you in choosing what credit card gives you rewards for your pleasure. Of course, cashback should not be the only criteria, make sure you know if your credit card will attract an annual fee that covers different kinds of perks and insurance.
A credit card helps when you travel abroad and you need to make purchases as you do not have to deal with currency conversion or possibly loss of money. Withdrawing cash abroad attracts a fee, which makes credit card one of the best options.
The biggest misconception when it comes to credit cards is that a lot of people, especially new immigrants think credit card money is free money. Nope! It is not free money. You are expected to pay back whatever money you use on your credit card. A minimum payment is expected every month whenever you use your credit card. However, you still get charged interest on the remaining balance you do not pay. The longer you delay in paying back the money you have used, the more interest you compound. I recommend that you pay your full statement balance before the due date of your billing cycle.