Banking in Canada: Credit Cards for Newcomers
Credit cards are a key part of Canadian consumer finances. Check out this guide for information on how to find the best credit card for you, help understanding credit card fees and limits and more as you work towards financial freedom in your new home.
Table of Contents
- What do credit cards allow you to do?
- Can immigrants get credit cards in Canada?
- Why is having a credit card important?
- Which credit card is right for me?
- What are the different types of fees associated with credit cards?
- How does credit card interest work?
- What is a credit limit?
- What credit limit will I get approved for?
- Contact CanadaVisa and Cohen Immigration Law for Assistance
This CanadaVisa guide will take you through the fundamental things you need to know about possessing a credit card in Canada.
To begin, this page will explain what transactions you can make with a credit card and who is eligible for a card in Canada. Then, we go over why a credit card is important to have in this country and how to decide which credit card is best for you as an individual. This is because no two credit cards are the same and picking the right card for you requires careful research and time spent exploring all of the available options.
From there, this page will include a discussion about three different types of fees associated with credit cards – annual fees, merchant surcharges and interest – before taking time to help readers better understand how interest rates work with credit cards based on the type of transaction made by the cardholder.
Finally, this page will conclude with some information for the reader about credit limits, including what they are how they are decided and what credit limit they can be approved for as a newcomer to Canada.
What do credit cards allow you to do?
Credit cards, which are offered by all major financial institutions in Canada, allow you to pay for goods and services with temporarily “borrowed” money in the form of credit. Every credit card offered to consumers comes with a maximum amount of credit the cardholder can use before they are required to pay back the money they use. This is called a credit limit. Paying down your balance on time allows you to regain access to more of the money available under your credit limit.
Note: The importance of paying down your credit card balance on time revolves around the accumulation of interest. Those who do not pay their credit card balance down in a timely manner will start accumulating interest, meaning they will have to pay more money on top of the credit used from the card.
Credit cards can be used to pay for goods and services in the following situations:
- At the point of sale (a cash register inside a store)
- Over the phone
- By mail
Credit cards can also be used to receive a cash advance. A cash advance is a type of short-term loan provided by a lender or your bank.
There are two ways you can use a credit card to obtain a cash advance:
- Taking out cash at an automatic teller machine (ATM)
- Getting cash from a financial institution
It is important to be cautious with cash advances because they can be a very expensive way to borrow money. It is worthwhile to consider a cheaper way to borrow money before opting for a cash advance, including a personal loan or line of credit.
Note: When you choose to get a cash advance, try to pay off as much of your balance as early as possible. This is because Interest accumulation on cash advances works differently than interest with credit cards (more on credit interest later).
Can immigrants get credit cards in Canada?
Yes. All newcomers to Canada – including permanent residents, international students and temporary foreign workers – are eligible for credit cards. In fact, many Canadian financial institutions offer specialized cards and deals for international students and newcomers to Canada with low incomes and/or short credit histories.
We encourage you to take your time shopping around with different financial institutions in your community to find the best credit card for you.
Why is having a credit card important?
Some of the many reasons that credit cards are valuable for newcomers include:
Many (if not all) credit cards allow the cardholder to accumulate rewards based on their spending. These rewards can include anything from loyalty card points for use on things like travel to cashback on everyday purchases, allowing you to save money in other areas of your life by using your credit card consistently over time.
- Financial Protection
Canadian credit cards, because they are overseen by your financial institution, offer protection against unauthorized charges made by scammers. This means that if you ever notice a suspicious charge made to your card, there are ways to dispute such transactions and your money back.
- Going cashless
Credit cards allow you to go cashless, meaning that you do not need to worry much about carrying around cash that may be easy to lose.
- Tracking your spending
Credit card transactions are all tracked via your bank’s online portal. This means that, at any time, you will be able to log on to your bank’s website to view, track and monitor all of your purchases.
- Building up credit
Building credit by using your credit card can be beneficial, especially as a newcomer to Canada, because good credit alongside a long credit history can help you obtain better interest rates on mortgages, auto loans and credit cards, among other things.
Which credit card is right for me?
Choosing the right credit card for you, much of the time, comes down to finding the right balance between a manageable credit limit and a low interest rate. Depending on your financial situation and spending patterns, especially as a newcomer to Canada, you will want to find a credit card with a credit limit that is high enough to give you the financial flexibility you need but also not so high that you overspend because you know you have the ability to do so.
That is also where having a good interest rate comes into play. If you do overspend and you cannot pay your full balance back on time, it is important to have a card with a manageable interest rate, meaning that it is a rate that is low enough for you to not accumulate too much extra interest that you will need to pay back in addition to payment of your existing credit card balance.
Ensure that you do your due diligence by shopping around with Canada’s many financial institutions to find the best credit card for your needs.
What are the different types of fees associated with credit cards?
As with most bank accounts in Canada, credit cards come with annual fees for the cardholder. Much like most other fees associated with financial institutions, annual credit card fees vary between banks, meaning that you must ask around at different providers to find which card has a manageable annual fee alongside the card benefits that best suit your needs.
Other fees associated with credit cards include merchant surcharges and interest fees/rates.
Outside of Quebec, merchants (store owners/sellers/providers of goods and services) are given the option of adding a surcharge to a credit card transaction, although this is not possible on some prepaid cards. The prepaid card surcharge allowance is either allowed or forbidden by the payment card network operators (PCNO).
In certain situations, depending on the PNCO, eligible merchants may add a surcharge called a “service or convenience fee.” This surcharge is only applicable to certain types of transactions.
Note: Merchants who choose to apply a “service or convenience fee to credit card transactions cannot also apply merchant surcharges
It is important to note that merchants are required to “clearly disclose surcharges and fees to cardholders before a transaction is completed.” This will give you, as the cardholder, an opportunity to either cancel the transaction without penalty before authorizing payment or pay with an alternative form of payment, (ex. debit or cash).
When a cardholder does not pay back their credit card balance on time, they begin to accumulate interest on their payments. The level of interest that adds up depends on the card’s interest rate designated by the provider (more on credit card interest later).
How does credit card interest work?
Interest on credit card transactions and cash advances obtained through credit cards work differently.
On credit card transactions, cardholders pay interest if they do not pay their credit card balance in full by the due date (typically once a month). Interest related to credit card transactions will continue to accumulate until the cardholder pays their balance back in full.
Interest rates vary depending on the policies of your financial institution and the type of transaction you make using your card. For example, regular, everyday purchases often come with one interest rate while cash advances and other transactions may carry different rates. Interest rates for specialized and retail credit cards may be higher than standard cards as well.
To the point about cash advances, there is no interest-free grace period as there is with standard credit card transactions (interest only accumulates beyond the payment due date). Instead, consumers who obtain cash advances using a credit card will need to pay interest from the date when get the cash advance until the moment they pay it back in full.
What is a credit limit?
Your credit limit is the maximum amount you are allowed to spend on your credit card. Credit card issuers set your limit when you first get your credit card.
Note: You will progressively regain access to more money within your credit limit as you make payments toward your credit card balance.
For example, if you have a credit limit of $5,000 and you pay $1,500 for a family vacation, you will have $3,500 remaining until you reach your limit, and your card maxes out. However, once you repay that $1,500, your amount of available credit will rise back up to $5,000 and you will once again have your full credit limit available to use.
Over time, you may ask the financial institution that issued your card to reduce or increase your limit. However, your credit card issuer must get your permission in writing or verbally before increasing your credit limit. When you do so, this is referred to as providing “express consent.” If you give your express consent, your credit card issuer must confirm the change in writing by no later than the time you are issued your next credit card statement.
What credit limit will I get approved for?
The credit limit you get approved for will depend on several factors, including your income level and payment history.
More information on the factors that influence your credit limit can be found here.
As a newcomer to Canada, many banks may offer you high credit limits to entice you to obtain a credit card from their institution. Again, it is important to remember that a high credit limit is not always best, as careless spending can often result. In other words, the best credit limits are often the ones that you can best handle given your personal financial situation.
The key is to, as we said before, shop around to see what credit limits different Canadian banks are willing to offer.
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