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Credit card guide for dummies and beginners

Understand how credit cards work, what they cost and how to choose the right one for you.

Updated

Fact checked
Due to the COVID-19 outbreak, the WHO recommends using contactless payments. Credit card networks like Visa, MasterCard and American Express have subsequently increased their contactles pay limit from $100 to $250 per transaction. We will further update this page as more information becomes available.

If you’ve never had a credit card or you don’t fully understand how they work, you can use this guide to understand the key features and costs of a credit card to help you find the right one for your budget and spending habits. You can also discover which types of credit cards are best suited to beginners and the mistakes you should avoid getting your credit card history off to a good start.

How does a credit card work?

A credit card works as an unsecured revolving line of credit. You make purchases using the card and at the end of your billing cycle, you receive a statement that tells you the total amount you owe for that period.

Based on your perceived ability to make repayments, credit card companies assign you a credit limit, which is the maximum amount of money you can borrow at one time. Unlike a debit card that uses your own money to make purchases, you are borrowing the bank’s money when you use a credit card and if you don’t pay that money back on time, you’re charged interest.

How credit card interest works

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 statement or interest-free period, also known as the grace period. Depending on the card, your purchases will collect an interest rate usually between 9.99% and 21%, however it can be as high as 36% and as low as 1.99%.

  • If you’ve used your card for an ATM withdrawal or any other transaction that’s considered a cash advance, you’ll accrue interest at the cash advance rate of around 24%. This interest is usually charged immediately, as there is no grace period offered when taking out a cash advance.
  • If you decide to balance transfer your debt down the track, which means you move your debt onto a single credit card that offers a lower introductory interest rate for a specified period of time, you’ll also accrue a revert rate once the promo period is up – which is usually the same as the cash advance rate or standard interest rate. Some cards do offer 0% promotional periods on balance transfers, so this is something to keep in mind during your comparison.

Each month, you’ll receive a statement that will detail the transactions you’ve made, the total outstanding balance you have and any interest you’re accruing. While you’re only required to pay a minimum repayment each month (usually 2-10% of your total balance), it’s best to pay as much as you can. If you pay your entire balance in full, you can take advantage of at least 21 interest-free days in the next statement period. If you don’t pay your entire balance in full, the remainder will start to collect interest. If you miss the minimum repayment, you could be charged late payment fees.

hand with red nails holding credit card

What are the features of a credit card?

  • 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. Interest is the cost to borrow money using a credit card. Interest is charged as a percentage per annum (known as the APR) and varies depending on whether you’re using your credit card for a purchase or a cash advance. Pay your balance in full by the statement due date and you get up to a number of interest-free days on purchases in the next statement period. 21 days is the minimum interest-free period offered on all cards in Canada.
  • Balance transfers. If you’re struggling to pay off an existing debt because of interest costs, you can transfer the debt to a credit card with a different provider and get a promotional interest rate on the balance transfer for an introductory period. Many card issuers offer 0% on balance transfers and the promotional periods can last 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. Keep in mind you will be charged a revert rate for making new purchases on this card, with revert rates usually sitting around 19.99% or higher.
  • 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.

What are the costs of a credit card?

  • Repayments. Although you’re required to make the minimum repayment when your statement is issued, you’re free to repay as much as you like and as often as you like beyond this minimum. The minimum repayment is usually only 2% to 10% of your outstanding balance, so it’s best to pay your account in full (or as much as you can) each statement period to reduce your interest costs. You will pay a late payment fee if you don’t make the minimum repayment by the statement due date.
  • Annual fee. This is the cost to own a credit card. The annual fee ranges from $0 to hundreds of dollars depending on the type of credit card. The credit card annual fee is deducted from your available credit and accrues interest at the purchase rate if it isn’t paid 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 credit cards are an unsecured product; financial institutions have no rights to take your assets if you default on your repayments.
  • Other fees. Other fees you may run into include late payment fees, overlimit fees (a fee for spending past your credit limit), rewards program membership fees and cash advance fees.
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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 No Annual Fee, Low Interest Rate and Student Credit Cards

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
BMO Preferred Rate Mastercard
12.99%
12.99%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
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.
HSBC +Rewards™ Mastercard®
11.9%
11.9%
$0 annual fee for the first year ($25 thereafter)
N/A
Earn 2x the rewards on eligible dining and entertainment.
Earn 30,000 Points ($150 travel value), plus get a full annual fee rebate for the Primary Cardholder for the first year ($25 value). Apply by March 29, 2021. Conditions Apply. This offer is only available to residents of Canada other than the province of Quebec (Quebec residents eligible for separate offer).
BMO Rewards Business Mastercard
14.99%
22.99%
$0 annual fee for the first year ($120 thereafter)
N/A
Earn 3 BMO Rewards points for every $1 you spend on gas, office supplies, cell phone bills and internet bills, and earn 1.5 BMO Rewards points for every $1 you spend elsewhere.
Get up to $470 in value in your first year. Get 50,000 BMO Rewards points when you spend $5,000 in the first three months. Plus, the primary cardholder will get the first year $120 annual fee waived.
Business Platinum Card from American Express
N/A
N/A
$499
N/A
Earn 1.25 Membership Rewards points for every $1 spent on eligible purchases
Earn a Welcome Bonus of 50,000 Membership Rewards points when you charge $7,000 in purchases to your Card in your first three months of Cardmembership.
American Express Business Gold Rewards Card
N/A
N/A
$250
N/A
Earn 2 Membership Rewards points for every $1 spent on eligible purchases at select American Express merchant suppliers in Canada (choose 3 suppliers), and earn 1 Membership Reward point for every $1 spent on eligible purchases elsewhere
Earn a Welcome Bonus of 30,000 Membership Rewards points when you spend at least $5,000 on eligible purchases within the first three months
Scotiabank Value Visa Card
12.99%
12.99%
$29
$12,000
Save on interest for 6 months by consolidating your higher-rate balances with the balance transfer offer, and get an on-going 12.99% interest rate on purchases, cash advances and balance transfers.
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by February 28, 2021.
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Compare up to 4 providers

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
BMO CashBack Mastercard
19.99%
22.99%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get 5% cash back on all eligible purchases in the first three months of card membership (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine Money-Back Credit Card
1.95% intro APR for the first 6 months, 19.95% thereafter
19.95%
$0
$12,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
Choice Card from American Express
19.99%
23.99%
$0
N/A
Earn 1 American Express Membership Point for every $1 you spend on purchases.
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 of Cardmembership.
Shell AIR MILES Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash).
Tangerine World Mastercard
19.95%
19.95%
$0
$60,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
Shell CashBack Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 1.5% cash back at participating Shell locations in Canada (up to a maximum spend of $2,500 in any monthly billing period), and get 0.5% cash back everywhere else.
Get $50 in cash back bonuses once you charge your first eligible purchase to your card. Plus, earn 1% cash back for the first 6 months on all eligible purchases.
BMO Rewards Mastercard
19.99%
22.99%
$0
$15,000
Get 1 BMO Reward point for every $1 spent on eligible purchases, and get 2 BMO Rewards points for every $1 spent at participating National Car Rental and Alamo Rent A Car locations.
Get a bonus of 15,000 BMO Rewards points. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO IGA AIR MILES Mastercard
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent on eligible purchases at IGA stores and at participating AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash).
BMO AIR MILES Mastercard
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
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.
BMO AIR MILES Mastercard For Students
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a 1.99% introductory interest rate on balance transfers for 9 months. A 1% fee applies to balance amounts transferred.
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Compare up to 4 providers

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
American Express Cobalt Card
19.99%
21.99%
$120
N/A
Earn 5 Membership Rewards points per $1 spent at eligible grocery stores, restaurants, bars, cafés and food delivery services, and earn 2 Membership Rewards points per $1 spent at eligible gas stations, and on transit and travel purchases, and earn 1 Membership Rewards point per $1 spent elsewhere. Terms apply
Earn up to 45,000 bonus Membership Rewards points. In your first year as a new Cobalt Cardmember, earn 2,500 Membership Rewards points for each monthly billing period in which you spend $500 on your card (for a total of 30,000 points in a year). Plus, earn a Welcome Bonus of 15,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership. Apply by May 5, 2021.
Tangerine Money-Back Credit Card
1.95% intro APR for the first 6 months, 19.95% thereafter
19.95%
$0
$12,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
BMO Preferred Rate Mastercard
12.99%
12.99%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
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.
Shell AIR MILES Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash).
Shell CashBack Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 1.5% cash back at participating Shell locations in Canada (up to a maximum spend of $2,500 in any monthly billing period), and get 0.5% cash back everywhere else.
Get $50 in cash back bonuses once you charge your first eligible purchase to your card. Plus, earn 1% cash back for the first 6 months on all eligible purchases.
BMO Rewards Mastercard
19.99%
22.99%
$0
$15,000
Get 1 BMO Reward point for every $1 spent on eligible purchases, and get 2 BMO Rewards points for every $1 spent at participating National Car Rental and Alamo Rent A Car locations.
Get a bonus of 15,000 BMO Rewards points. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO IGA AIR MILES Mastercard
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent on eligible purchases at IGA stores and at participating AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash).
BMO U.S. Dollar Mastercard
19.99%
22.99%
$35 USD
$15,000
Receive an annual fee rebate with a minimum yearly spend of US$1,000. Plus, spend in US Dollars with no exchange rate surprises.
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
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
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.
BMO CashBack Mastercard
19.99%
22.99%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get 5% cash back on all eligible purchases in the first three months of card membership (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
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Compare up to 4 providers

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
BMO AIR MILES Mastercard For Students
19.99%
22.99%
$0
$15,000
Get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a 1.99% introductory interest rate on balance transfers for 9 months. A 1% fee applies to balance amounts transferred.
Tangerine Money-Back Credit Card
1.95% intro APR for the first 6 months, 19.95% thereafter
19.95%
$0
$12,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
Scotiabank SCENE Visa Card
19.99%
22.99%
$0
$12,000
Earn 5 SCENE points per $1 spent at participating Cineplex theatres or cineplex.com, and earn 1 SCENE point per $1 spent on eligible purchases elsewhere.
Earn 2,500 bonus SCENE points when you spend a minimum of $500 on eligible purchases in the first three months as a new SCENE Visa cardholder. Apply by February 28, 2021.
BMO CashBack Mastercard For Students
19.99%
22.99%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get up to 5% cash back in the first three months (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers for 9 months, with a 1% fee for every transferred balance.
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How to apply for your first credit card

Applying for a credit card is as simple as comparing your options, figuring out which card you want, making sure you meet the eligibility requirements, gathering the necessary documents and submitting an online application form. You will be asked about your income, assets and liabilities and will need to prove your identity. Most banks and providers will give you a response within 60 seconds and if you’ve been approved, you will receive your card in the mail about 10 days later. The entire application process takes less than 10 minutes, provided you have the necessary documents on hand.

The requirements will vary between cards, but you can browse some of the criteria below:

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 18, or the age of majority in your province or territory.
  • 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.

Necessary documents

  • Income information. You’ll need to provide copies of your most recent paycheques to prove your income. If you’re self-employed, you can provide your tax return instead.
  • 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 your driver’s licence, passport or other form of valid Government-issued ID.

Dos and don’ts of your first – or any – credit card

Here are some good credit card habits to get into and some mistakes to avoid:

Do

  • Make regular repayments. Credit cards are not free money. You need to make at least the minimum repayment every month so you can avoid late payment fees, stop your account from going into default and maintain a good credit history. However, you should always aim to pay more than the minimum to avoid being sucked into the cycle of debt.
  • Stay within your budget. Having a credit card means you can temporarily spend more money than you actually have. This can make it tempting to buy things you normally wouldn’t. The best practice is to treat your credit card as if you were spending your own money, and if you need to spend more, pay it off as soon as possible.
  • Educate yourself. It’s important to understand how credit cards work. For example, remember that ATM withdrawals count as cash advances and will immediately charge a higher interest rate. Even if you have an introductory 0% interest rate on your balance transfer card, you’ll still need to make repayments each month and you can only take advantage of interest-free days when you pay your balance in full. Understand the fees and charges that come with most credit cards before you apply.

Don’t

  • Make cash advances. When you use your credit card to get money from an ATM, you’ll be charged a cash advance fee of a couple of dollars as well as the cash advance interest rate, which can be higher than your standard interest rate and is charged immediately as soon as you withdraw the cash. Interest-free days do not apply when you use your credit card for a cash advance.
  • Share your credit card information. Apart from directly logging into your online banking or your bank’s official app, do not enter your credit card information or log-in details into any email, text message or third-party website, with the obvious exception of making purchases from a trusted source.
  • Apply for a credit card you can’t really afford. Many people who apply for their first credit card choose a no annual fee or low rate credit card. Rewards credit cards can be a great way to get something for nothing, however, these products generally charge higher annual fees and interest rates and tend to be better suited for those who have experience with a credit card.

If you still have questions about how credit cards work after reading this guide, reach out to us using the form at the bottom of the page. A member of the finder Canada team will be in touch.

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