Using credit cards to pay for your purchases is normal in Canada. What’s more, they are essential for your financial health. Credit card transactions allow you to build a credit score. A credit score is a number that says how well you manage your money. This score is reviewed by banks when you want to get a loan, or by rental agencies when you want to rent property.

Learn more about credit scores by reading Understanding your credit history.

Having a good credit score is important in Canada. But you don’t need to have credit card debt to get a credit score. What you need is to use your credit card, but spend only what you can pay off each month.

The first step is to choose the perfect credit card for you. These are the key aspects to consider when choosing a credit card:

1. Do you have credit history?

   Credit history is a record of how you have handled your money and debts in the past. However, you cannot carry this record when you move to another country. So as a newcomer, you have to start from scratch.

   This is why it used to be a common practice for banks to offer secured cards to newcomers. A secured card requires a security deposit. The security deposit is equal to the credit limit (the maximum amount a bank can lend to the credit card user) and acts as a collateral whenever the holder uses the card. But nowadays, most major banks offer credit cards designed for newcomers to Canada. For example, Scotiabank has the Start Right Program, while RBC has Newcomer Advantage. They do not ask for security deposits anymore. However, the credit limit starts low at around $5,000 to $15,000. The credit limit increases as the holder continues using their card responsibly.

2. Does it have an annual fee?

   Some cards will charge annual fees. This can range from $35 to $500 or more. Some banks charge it annually, others on a monthly basis (meaning if the annual fee is $35 for example, you will be charged around $3 per month). Credit cards with annual fees often come with a lot of benefits or rewards, like travel perks or bonus offers. For example, if you’re a person who travels often and uses their credit card for most purchases, then you may find that paying for an annual fee is worth it. Otherwise, it might be wiser to stick to a credit card with no annual fees.

3. Does the card have a low APR?

   The annual percentage rate is your interest rate and any fees (annual or purchase specific) combined. A high APR means you pay more money to use the card, and a low APR means you pay less money to use the card. In 2024, the average Canadian APR was greater than 20%. This means that if you fail to pay your credit card debt when it becomes due, an amount equivalent to 20% of your debt (plus fees) will be added to your total credit card bill.

   An important thing to know is if you pay your balance off in full on or before it becomes due, you will never be charged interest. However, if you know you’ll sometimes take more than one billing cycle to pay off your credit card, then the APR is important to consider.

4. What are the rewards?

   Rewards should be your final consideration when choosing a credit card. Rewards can be in the form of free merchandize, points you earn when you use your card, and other perks. These points can be used to pay your credit card bill or to buy other things. They are designed to draw you in, so make sure you will really benefit from them. For instance, the RBC Cash Back Mastercard says it offers “unlimited cashback” with 2% cash back on grocery store purchases. Nonetheless, you can only get the 2% rate for your first 6,000$ in groceries: that’s 120$ cashback. Then, the rate halves to 1% for the rest of your grocery purchases.

   There are also credit cards that offer discounts or points when you shop at selected stores. However, note that the stores and offers can change over time. So, if you don’t buy from the stores that are included in the offer, then you don’t really benefit from this perk. Remember to read and understand the terms and conditions fully before you decide on a credit card.

You need to have a credit card if you live in Canada. It’s a good thing that there are many good options for newcomers. The most important thing is to pay off your balance each billing cycle, so you’re improving your credit score!

If you’re looking for a good credit card, check out the Government of Canada’s Credit Card Comparison Tool for an impartial comparison across different credit card providers.
 
By Nastashya Wall
 
Sources: Choosing a Credit Card, Government of Canada; Best Credit Cards for Newcomers, Government of Canada; The Best Credit Cards for Newcomers to Canada, LinkedIn; What is APR?, Consolidated Credit; and What are Credit Card Interest Rates? Forbes.
 
Note: English Online is not affiliated with the banks mentioned in this article. We do not endorse these bank products. We mentioned them for illustrative purposes only.