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There’s a lot of information out there on how credit cards work and why we should use them responsibly, but not much is said about what goes into the process of actually applying for one. Canadians apply for credit cards every day, and the application form may seem like just a simple exchange of information. In order to be approved, however, credit card issuers need to look at your current financial situation; to do so, they need to pull up your credit report, which means each application may result in a small and temporary hit to your credit score – especially if you’re declined. Here’s a quick look at what you should know about credit card applications, before you hit “submit”.
Submitting a credit card application is your way of requesting access to credit. The main risk to a credit card issuer is that they will lend money you cannot/will not pay back. For this reason, applying for a credit card requires that you demonstrate to the card issuer (lender) you are a responsible and capable borrower.
In addition to basic personal information, such as your name, date of birth (you must be 18 years of age) social insurance number (SIN) and address, a credit card issuer may also require your:
In addition to all of this, the credit card issuer will also want to review your credit history. As part of the application process, you have to authorize them to run a background check with one of Canada’s credit-reporting agencies. The agency will provide the issuer with a copy of your credit report, including your credit score. Your credit score reflects your payment history with other debt obligations.
All of the information the credit card issuer obtains about you is used to determine whether or not they should give you access to credit and, if so, how much credit they should extend. How much you earn on an annual basis can directly impact which credit card you qualify for and how much credit you’ll be given access to.
For example, if you had a limited income, you should be given only a small amount of credit to ensure you can afford to pay off your balance in full each month. However, if you have a higher income, you may be able to afford some of the rewards credit cards that come with annual fees and larger credit limits, because a credit card issuer can see you earn enough money to do the same.
Here are some examples of credit cards offered by TD Canada Trust, along with their minimum income requirements and available credit limits:
|Credit Card||Minimum Income||Credit Limit|
|TD Rewards Visa Card||None||Minimum $500|
|TD First Class Travel Visa Infinite||$60,000 (or $100,000 household income)||Minimum $5,000|
|TD Aeroplan Visa Infinite Privilege||$200,000||Minimum $10,000|
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While it may seem like you’re giving out a lot of information, in order to get this new credit card, as a consumer, you have the right to access some information for yourself. Specifically, the credit card company must tell you all the important information about the credit card they will issue you. In Canada, all of these details must be laid out in an “Information Box” that explains:
The box will look something like this:
|Initial Credit Limit||$5,000|
|Annual Interest Rate or Rates||19.99% on purchases, 24.99% on cash advances and balance transfersAPR increases to 24.99% in the event of a late payment, credit limit breach or violation of contract terms|
|Interest-Free Grace Period||21 days|
|Determination of Interest||Interest is determined using the average daily balance method|
|Minimum Payment||Greater of 3.00% of your balance or $10|
|Foreign Currency Conversion||2.50%|
|Other Fees||Balance transfer fee: 1.00% of amount transferred
Extra copy of statement: $5
Overlimit fee: $25
For most credit cards, it takes between 7-10 days to be approved, though it can take up to 30 days.
For some credit cards, you can apply online and find out if you’ve been approved almost immediately; these are known as instant approval cards. If your application is successful, you will still have to wait 7-10 days to receive the card in the mail, however, as the approval is conditional upon a background check, i.e. a review of your credit report and credit score.
If your application is successful, or if an existing credit card expires and must be renewed, a new card will be mailed to you. Once you receive your new credit card, call the toll-free number on the back of the card to activate it.