Here’s the Age Young People Should Get Their First Credit Card

Are Personal Finance Writers Changing Their Minds About What’s Right? certainly. A few years ago, I changed the practice of young people having credit cards before they started working.

I now feel the need to have one in late high school or as soon as possible when I go to college or college. Having a credit card with a modest spending limit helps build financial skills and opens the door to saving money on online purchases.

There is another reason, and the most important one. Using your credit card responsibly is the best way to build a good credit score.

A reader asked some time ago for some opinions on how long it might take young people to build a credit score good enough to rent an apartment or borrow from a bank. For answers, I consulted Julie Kuzmic, Senior Compliance Officer for Consumer Rights at Equifax Canada. Ms Kuzmic said if someone had only one credit card and paid in full every month, Equifax had seen people build and improve their scores within six months.

“Keep in mind that this time frame may be affected by a variety of factors, including credit card balances very close to credit limit, applying for more credit accounts or late payments,” she added in an emailed response to questions.

Equifax, a big player in packaging credit score data, on its website it says Lenders typically consider people with credit scores of 660 and above to be good to excellent borrowers. Ms. Kuzmic noted that landlords and lenders may have their own views on what constitutes a “good enough” credit score. They may also consider factors such as job status and income when deciding whether to rent an apartment or lend someone a loan at a competitive interest rate.

Many banks offer free credit cards to students aged 18 or 19 and over, depending on the province. Once a student reaches that age and earns some income through part-time or summer jobs, it’s time to start thinking about credit cards, allowing enough time to build a good credit score.

Two rules for credit card newbies: Pay for all purchases online immediately so you’re not scrambling to pay your monthly bill, and keep your credit limit at $500 or $1,000 to limit damage from abuse.

I used to think that young people didn’t need credit cards until they started working, and that it was predatory for banks to provide credit cards to young people. But building a credit score is too important to delay. Today, lenders, landlords, employers and insurance companies look at credit scores when evaluating people. Start early to make a good impression.

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ask: I’m a 36 year old professional with no debt (no mortgage/house of my own) and regularly use up my TFSA and RRSP contributions each year. I’m currently holding a ton of cash in a high-interest savings ETF that yields about 3% a year after fees. With a new year approaching and new room for TFSA and RRSP contributions, I’m wondering whether to use up my contributions immediately (on January 1st) and hope for the best, or continue to gradually increase weekly throughout the year Contributions are better until I hit the max.

A: A one-off donation or a gradual investment, that’s a classic question. Academic research shows that lump sum payments work better in most cases. However, this gradual approach, known as dollar-cost averaging, has some compensating advantages in that it can smooth out your investing experience. Your exposure to buying at market peaks is limited and you are guaranteed to buy at market lows. Consider a lump sum only if you can ride out market turmoil immediately and focus on long-term results.

Do you have any questions for me? Send it my way. Sorry I can’t answer everyone personally. Questions and answers have been edited for length and clarity.

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