Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

What is a Credit Card? A Beginner’s Guide to Credit Cards

Find out how credit cards work including interest rates, fees and how to apply. Plus, learn why your credit score matters.

Using a credit card responsibly can improve your credit score, open up new financing opportunities and help you qualify for favourable terms. In this beginner’s guide, we walk though what you should know about credit cards including fees, features, interest rates, types of cards and how to apply.

What is a credit card?

A credit card works much like a debit card, except the money you spend is borrowed and must be repaid (often with interest). Essentially, a credit card is an unsecured revolving line of credit. You can spend funds whenever you want — all at once or in multiple purchases over time — up to a predetermined credit limit.

You only make repayments when you use funds, so if you don’t charge any purchases to your card, you don’t owe anything. You’re only charged interest fees when you don’t pay off your balance within a certain time frame called a grace period.

At the end of your billing cycle, which is usually around a month, your card issuer sends a statement showing what you spent and your minimum payment. You won’t be forced to pay the entire balance back at once, but you have to pay at least the minimum payment to avoid penalty fees and keep using your card. You’re free to make extra payments to bring down your balance whenever you want without penalty.

A credit card is…

  • A convenient way to pay. Credit cards make it easy to make online purchases. And don’t worry about carrying a ton of cash to the store to make a large purchase — just charge it to your card.
  • A way to build your credit score. A strong credit score can help you get a mortgage, loans with competitive interest rates and more.
  • More secure than cash. Credit card issuers have robust fraud departments, and many cards come with purchase protection to guard against unauthorized purchases to your card. Additionally, you don’t need to keep cash on your person when out in public.

A credit card is not…

  • Free money. Whenever you swipe your card, you’ll need to pay for your purchases sooner or later. Furthermore, you’ll pay interest if you carry a balance on your card month to month.
  • A debit card. When you swipe a debit card, money is immediately taken out of your bank account. With a credit card, swiping means borrowing money from your card provider. You have to pay it back.
  • An ATM card. You can use your credit card at many locations, not just at ATMs. However, if you use your credit card at an ATM, watch out for high cash advance interest rates.
  • A loan. You don’t have to obtain money from your bank in advance. You’ll only owe money to your bank or provider when you make a purchase, meaning you’ll only pay interest on the amount that you use. However, like a loan, you usually have to pass a credit check to get approved for a credit card.
  • Unlimited money. Your card will come with a credit limit — the maximum amount you can carry on your card.

What credit score do I need to get a credit card?

Although you can apply for some cards with bad credit, you’ll have the most options if your score is 650 or higher. Whenever you apply for credit from a lender, the lender conduct a hard credit check. Unlike a soft credit check, a hard check will temporarily lower your credit score by a few points. As long as you don’t apply for too many credit products too often, your score will bounce back soon.

Lenders use the information in your credit report to assess whether you’re likely to default on debt. The higher your credit score, the more likely you’ll be approved for a credit card. Several factors play into your score including:

  • Credit utilization ratio. This is the amount of credit you’re using relative to your total available credit. Lenders want to see low credit utilization — it implies you manage debt responsibly and are unlikely to default on your payments.
  • Payment history. One of the best ways lenders can predict whether you’ll make payments on time is to check whether you’ve already been doing so with other debt.
  • Length of credit history. Card providers can more accurately predict how reliably you’ll make payments if you have a long credit history.

If approved, make payments on time and keep your debt low to increase your score.

What credit score do I need to get a credit card?

How does credit card interest work?

As you make purchases on your credit card, your debts will begin to collect interest if you don’t pay the whole balance back by the end of the interest-free period, also known as the grace period . The type of interest rate you’re charged depends on the type of transactions that make up your balance:

  • Purchase rate. The interest rate charged on everyday purchases is usually between 8.99% and 22%. You may be able to secure a low promotional interest rate when you sign up for a new card. But, this will revert back to the regular purchase rate one the promotional period expires.
  • Cash advance rate. You could be charged as high as 29.99% or more for cash advances, which includes ATM withdrawals. Usually, there is no grace period for cash advances, so interest will start to accrue immediately.
  • Balance transfer rate. If any part of your balance was transferred from another credit card, then a balance transfer rate of 0%-22% could apply to that amount. (Some cards offer special promotional rates on balance transfers if you decide to switch cards).

Each month, you’ll receive a statement that will detail the transactions you’ve made, the total outstanding balance you have and any interest accumulating 0n your balance. While you’re only required to pay a minimum repayment each month (usually 1-3% of your total balance), it’s best to pay as much as you can to avoid interest. If you miss the minimum payment, you could be charged late payment fees.

Avoid credit card interest by paying off your balance

What features do credit cards come with?

Credit cards typically come with a credit limit, grace period and contactless payment. But cards can vary with respect to many other features, so it’s important to compare options carefully to find the right balance of perks versus costs.

  • Credit limit. This is the maximum amount of money you can borrow using your credit card, this can be as low as $500 for a student credit card and as high as $20,000 for a high income earner.
  • Interest-free days (grace period). Interest is the cost of borrowing money. It’s charged as an annual percentage rate (APR), which can vary depending on whether you’re making a purchase or cash advance. Pay your balance in full by the statement due date, and card issuers are legally required to give you at least 21 interest-free days on purchases in the next billing cycle.
  • Balance transfers. If you’re struggling to pay off an existing debt on a high-interest card, you can transfer the debt to a credit card with a different provider and get a promotional rate on the transferred balance for a limited time (up to 6 months or more). This will give you time to pay down your debt while paying a low or no interest rate on the balance. After the promo period is over, a regular balance transfer rate of will apply, usually around 19.99%.
  • Cash advances. Using your credit card to get cash from an ATM is considered a cash advance transaction. Cash advances attract a cash advance fee and a higher interest rate that is usually charged from the moment you withdraw your cash.
  • Rewards programs. You can reward your spending by opting for a card that earns rewards or travel points when you make eligible purchases. Many of these cards also offer thousands of bonus points when you meet a spend requirement after signing up. However, these cards often come with higher annual fees, since you’re being offered many more perks.
  • Contactless payments. For purchases under $100, tap your credit card or mobile-pay compatible device against a contactless reader to complete a purchase in seconds. This means you can bypass signing or inputting your PIN into the credit card terminal.
  • Insurance coverage. Most platinum, gold and black cards offer some form of complimentary insurance. This can include everything from purchase protection insurance and extended warranty coverage to overseas medical travel insurance, car insurance and accident insurance. Most regular credit cards offer purchase protection insurance and extended warranty coverage only.
  • Extra features. Some credit cards come with extras such as airport lounge access, concierge services, invitations to exclusive events, discounts with partnered retailers and much more.

Different types of credit cards

Standard credit cards

  • Low interest. This type of card can offer a low interest rate forever or a very low interest rate at the beginning that reverts to a higher rate later.
  • Balance transfer. With a balance transfer, you move your credit card debt to another card. A balance transfer card gives you a low or no interest rate for a period of time when you move your debt.

Rewards credit cards

Rewards cards provide bonuses for your everyday spending.

  • Cash back. You’ll get a percentage of your spending back usually at the end of the year using a cashback credit card. For example, if you spend $10,000 and get 1% cash back, you’ll receive $100.
  • Travel. You’ll accrue points or miles you can redeem for travel perks using a travel credit card.
  • Gas. Get discounts when you spend on fuel with a gas credit card.
  • Retail. You can accumulate points with these cards and redeem them for retails purchases and gift cards. Learn more about rewards cards here.

Credit repair cards

A credit repair card can help you re-build your credit history or build it from scratch if you don’t have any. It is relatively easy to get. It won’t offer top-notch rewards, but it does let you build or rebuild your credit slowly.

  • Secured. You’ll need to put down a security deposit to open a secured card. That deposit becomes your line of credit which you borrow against.
  • Prepaid. Before you can use a prepaid card, you pre-load it with funds. You can reload it with funds at any time.

Specialty credit cards

  • Business. With a business credit card, you’ll typically get points, miles or cash back on business-related expenses plus travel benefits and perks.
  • Student. A great choice if you’re a post-secondary student, student credit cards are designed for students with little or no credit history.
  • Store. You can use store branded cards only at select retail locations or websites, but you’ll get discounts and rewards when you do. These cards promote loyalty to a specific store.

Charge cards

  • Charge. You’re required to pay your balance in full each month. Charge cards are rare but still exist. Many cards offered by American Express are charge cards.

What are the costs of owning a credit card?

  • Repaying your balance. You must make at least the minimum payment when your statement is issued. Beyond this, you can repay as much as you like whenever you want. The minimum repayment is usually only 1%-3% of your outstanding balance. Pay your account in full (or as much as you can) each statement period to cut down on interest costs. You’ll be charged a late payment fee if you don’t make the minimum repayment by the statement due date.
  • Annual fee. This maintenance fee can range from $0 to hundreds of dollars depending on the credit card. The credit card annual fee is deducted from your available credit and will accrue interest at the purchase rate if it isn’t repaid in the first statement period.
  • Interest rates. Interest is the price you pay to borrow money. Credit card interest rates are much higher than other types of financing options because most credit cards are unsecured. Financial institutions cannot repossess your assets if you default on your repayments.
  • Other fees. Other fees you may run into include late payment fees, fees for going over your credit limit, rewards program membership fees and cash advance fees.

What types of credit cards are suitable for beginners?

woman with credit card pointing at the laptop screen on her husband's lap

In Canada, Visa, Mastercard and American Express issue credit cards with banks, financial institutions and even some retailers. There are many types of credit cards on the market to suit different cardholders’ needs. It can be wise to begin with a no-frills credit card so you can understand how credit cards work before upgrading to a fancier and possibly more expensive product.

These types of credit cards are suitable if you’re just starting out:

  • Low interest credit cards. Low interest rate credit cards typically feature a low purchase rate of interest. This is beneficial if you don’t pay back your balance in full by the statement due date. These credit cards can also offer a low interest rate on purchases for a promotional period. Low interest credit cards are suited to beginners still finding their feet making repayments. Paying off a debt over a couple of months is far cheaper with a low rate credit card than a rewards or premium credit card.
  • No annual fee credit cards. This type of credit card costs nothing to own up front. However, the rates of interest can be higher than low rate credit cards. A no annual fee credit card can sit unused in your wallet and it won’t cost you a thing. These types of credit cards are suited to beginners who are looking to build their credit history, but don’t want to go all-out on a credit card with lots of features.
  • Low income credit cards. Low minimum income credit cards have a low credit limit. Typically your annual income must be about $12,000 or greater to service the minimum credit limit of $500. Low income credit cards are typically either low rate or low fee credit cards. Low minimum income credit cards are suited to beginners who either have a low income or want a low credit limit to avoid the temptation to overspend.
  • Student credit cards. Students looking to avoid paying a high annual fee and high rates of interest generally look for student credit cards when comparing products. These cards tend to offer perks that attract students, including retail and movie ticket discounts.

Compare credit cards

Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
OFFER
HSBC +Rewards™ Mastercard®
30,000 Points
2x points per $1 spent
11.9%
$0 annual fee for the first year ($25 thereafter)
Min. recommended credit score: 630
Get 30,000 Points (up to $150 in value) when you spend $2,000 in the first 6 months. Plus, get the 1st year annual fee waived for the primary cardholder ($25 value). Apply by January 31, 2022.
BMO Preferred Rate Mastercard
3.99% rate on balance transfers for 9 months
N/A
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
Scotiabank Value Visa Card
0.99% rate on balance transfers for 6 months
N/A
12.99%
$29
Min. recommended credit score: 660
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by February 28, 2022.
Business Platinum Card from American Express
100,000 points
1.25 points per $1 spent
N/A
$499
Min. recommended credit score: 700
Earn a Welcome Bonus of up to 100,000 Membership Rewards points ($1,000 in statement credits that you can reinvest into your business).
American Express Business Gold Rewards Card
110,000 points
1 point per $1 spent
N/A
$199
Min. recommended credit score: 700
Earn a Welcome Bonus of up to 110,000 Membership Rewards points. If redeemed for statement credit, this is $1,100 that you can reinvest in your business.
National Bank Syncro Mastercard
N/A
N/A
8.90% or prime + 4.00%
$35
Min. recommended credit score: 740
Enjoy low purchase interest, cash advance and balance transfer rates.
loading

Compare up to 4 providers

Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
Brim Mastercard
Up to $200 worth of bonuses
1 point per $1 spent
19.99%
$0
Min. recommended credit score: 700
Earn up to $200 worth of bonus points when you shop with Brim retailers for the first time through the Brim mobile app.
Tangerine Money-Back Credit Card
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
SimplyCash Card from American Express
4% cash back
Up to 1.25% cash back
19.99%
$0
Min. recommended credit score: 700
Earn 4% cash back on purchases (up to $200 cash back) for the first 6 months of Cardmembership.
American Express Green Card
10,000 points
1 point per $1 spent
20.99%
$0
Min. recommended credit score: 700
Earn a Welcome Bonus of 10,000 Membership Rewards points when you charge $1,000 in purchases to your card in the first 3 months as a new Cardmember.
BMO Rewards Mastercard
10,000 points
Up to 2 points per $1 spent
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
Home Trust Secured Visa (No Annual Fee)
N/A
N/A
19.99%
$0
Min. recommended credit score: Any score
The no annual fee Home Trust Secured card comes with a standard 19.99% purchase and cash advance rate. Apply with any credit score and start rebuilding your credit.
BMO Cashback Business Mastercard
10% cash back
Up to 1.75% cash back
19.99%
$0
Min. recommended credit score: 650
Get 10% cash back on gas, office supplies, cell phone bills and internet bills for 3 months.
BMO AIR MILES Mastercard
800 Miles
Up to 3x Air Miles for every $25 spent
19.99%
$0
Min. recommended credit score: 660
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
loading

Compare up to 4 providers

Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Neo Financial Credit Card
N/A
Average 5% cash back
19.99% - 24.99%
$0
Min. recommended credit score: 600
Earn an average 5% cashback at thousands of partners and at least 1% cashback guaranteed. Neo partners with major gas and grocery stores, restaurants, gyms, coffee shops and more.
BMO Preferred Rate Mastercard
3.99% rate on balance transfers for 9 months
N/A
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
American Express Cobalt Card
50,000 points
Up to 5x points per $1 spent
20.99%
$155.88
Min. recommended credit score: 700
Earn up to 50,000 Membership Rewards points in your first year. Earn 2,500 Membership Rewards points for each monthly billing period in which you spend $500 in net purchases on your card (up to 30,000 points). Plus, earn a Welcome Bonus of 20,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership.
Tangerine Money-Back Credit Card
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
American Express Green Card
10,000 points
1 point per $1 spent
20.99%
$0
Min. recommended credit score: 700
Earn a Welcome Bonus of 10,000 Membership Rewards points when you charge $1,000 in purchases to your card in the first 3 months as a new Cardmember.
BMO Rewards Mastercard
10,000 points
Up to 2 points per $1 spent
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
Scotiabank Value Visa Card
0.99% rate on balance transfers for 6 months
N/A
12.99%
$29
Min. recommended credit score: 660
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by February 28, 2022.
BMO U.S. Dollar Mastercard
N/A
N/A
19.99%
$35 USD
Min. recommended credit score: 725
When your purchases total US$1,000 or more in a year, the next year's annual fee (US$35) is rebated to your card.
BMO AIR MILES Mastercard
800 Miles
Up to 3x Air Miles for every $25 spent
19.99%
$0
Min. recommended credit score: 660
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
loading

Compare up to 4 providers

Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
Tangerine Money-Back Credit Card
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Rewards Mastercard
10,000 points
Up to 2 points per $1 spent
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO AIR MILES Mastercard For Students
800 Miles
1 Mile per $25 spent
19.99%
$0
Min. recommended credit score: 660
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash).
BMO CashBack Mastercard For Students
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get up to 5% cash back in the first three months (up to max. spend of $2,000).
Scotiabank SCENE Visa Card
5,000 points
Up to 5 points per $1 spent
19.99%
$0
Min. recommended credit score: 660
Earn 5,000 bonus Scene+ points when you spend a minimum of $750 on eligible purchases in the first three months as a new SCENE Visa cardholder. Apply by February 28, 2022.
loading

Compare up to 4 providers

How to apply for your first credit card

You can apply for most credit cards online. Be prepared to provide personal information as well as details on your income, debts and assets. Many card providers will run a credit check and let you know within 60 seconds if you’ve been approved. You should receive your card in the mail about 10 days later. The entire application process takes less than 10 minutes, provided you have the necessary information on hand.

Exact requirements will vary between providers, but generally you’ll need:

Eligibility requirements

  • Minimum income. This is how much you need to earn every year to be eligible to apply. Low income credit cards usually require cardholders to earn at least $12,000 annually.
  • Age. You must be over the age of majority in your province or territory (either 18 or 19 years old).
  • Residential status. You will need to be a citizen or permanent resident of Canada. Some financial institutions offer credit cards to applicants with a student or temporary resident visa.
  • Good credit history. You will likely need to have a good credit history to be eligible to apply. If you do not have any credit history to date, you may only be eligible for a low credit limit. As you build credit history by using your credit card, you can apply for a limit increase in the future.

Information you’ll need to provide

  • Employment information. You’ll need to provide copies of your most recent pay stubs or bank statements to prove your income. If you’re self-employed, you’ll usually be required to submit Notice of Assessments from the last 2 tax years.
  • Government-issued identification. You will need to verify your identification with the credit card company before your application can be finalized. You can do this by providing a copy of a valid driver’s license, passport or some other form of acceptable government-issued ID.
How to apply for your first credit card

Should I get a credit card?

You may want to get a credit card for the following reasons:
  • Build or rebuild your credit. A credit card isn’t the only way to build credit, but it’s an excellent choice. When you use your card and consistently pay your bills on time, your credit score will increase.
  • It’s a convenient way to pay. Instead of carrying a lot of cash, you can simply tap your card.
  • Make a large purchase and pay it off over time. If this is your primary reason for getting a credit card, consider whether the purchase is essential. Also make sure that you can pay off your purchase in good time.
  • Make safer payments. Credit cards give you more protection that debit cards when things go wrong, thanks to the Consumer Credit Act. Learn more about credit card refunds.
You may NOT want to get a credit card for the following reasons:
  • It can be difficult to control spending. If you habitually overspend, consider holding off on a credit card. You may rack up huge amounts of debt that will be difficult to repay.
  • You’re not able to pay off your balance. The more time you take to pay off your balance, the more interest you’ll pay. Don’t borrow if you can’t foresee paying off your balance in a reasonable time.
  • Your credit score is poor. It’s not impossible to get a credit card if you have poor credit, but your interest rate will most likely be high and you may only qualify for a secured card with limited benefits. You may want to wait until your credit score improves before applying for a card to get favourable terms.

Frequently asked questions

More guides on Finder

Go to site