Credit cards in Canada
If you’re a newcomer to Canada, one of the first things you’ll want to do is set up a bank account at one of Canada’s banks. We’ve already written a great breakdown to help you get started. You can read that here. The second thing you might want to do is get a credit card.
A credit card is a valuable tool to keep in your wallet. It will allow you to shop in-store and online, can be a great budgeting tool, and it can help you build your credit history in your new country.
The bank you’ve chosen as your new financial home in Canada can offer you a number of different credit cards, each suited to different financial goals. Some offer low rates, others offer perks like cash back or travel rewards. We’ll help you figure out what kind might be best for you in a bit. Before that, though, let’s talk about how – and why – you should get a credit card as a newcomer to Canada.
Why should newcomers get a credit card in Canada?
As a new Canadian, getting a credit card can be an important step toward building a strong financial foundation in your new country.
For starters, establishing a credit history is essential for various financial activities, like renting an apartment, getting a car loan, or applying for a mortgage. Having solid credit history signals to lenders that you’re responsible at managing debt, which will make it more likely that they’ll not only offer you loans, but that the loans available to you will have great interest rates. A credit card provides an opportunity to start building this history by demonstrating responsible credit usage and repayment behaviour.
Having a credit card also offers convenience and flexibility in managing finances. It provides a secure and widely accepted method of payment for everyday expenses, online purchases, and emergencies. As an added bonus, many credit cards come with perks and benefits, such as cash back rewards, travel insurance, or purchase protection, which can add value to your spending – more on all these fun goodies in a bit.
Finally, responsible credit card usage can improve financial literacy and discipline. By learning to budget, track expenses, and pay bills on time, you can develop essential money management skills that will serve you well throughout their life in your new country.
It’s crucial, however, to choose a credit card wisely, considering factors such as interest rates, fees, and rewards programs, and to use it responsibly, paying off the balance in full each month to avoid accumulating debt. Overall, getting a credit card can be a smart step toward gaining financial independence and stability in Canada.
How do I get a credit card in Canada?
The process is actually very simple and straightforward. It’s the same no matter where you bank, whether that’s one of Canada’s big five banks, such as Scotiabank, BMO, TD, RBC, or CIBC, or a smaller credit union.
You have options when applying for a credit card. You can either visit a branch – chances are there’s one near you, or apply online. If you’re brand new to Canada, and aren’t sure where to start, visiting a branch might be the best plan for you. There, one of the financial advisors can explain the different offerings and find the one that’s best for you.
However, you can also do your own research. Each bank will have a list of the credit cards they offer, including all the necessary information.This includes:
- The card’s annual fee
- The card’s interest rate
- What sort of welcome bonus is offered
- The rewards program (if applicable)
- Any additional perks you should know about
When choosing your first credit card, consider a the following things to help you find the best option for your financial needs and goals:
Credit history requirements: If you haven’t yet established credit history in Canada, you should look for credit cards that are accessible to individuals with limited or no credit history. Some credit cards are specifically designed for newcomers and may be easier to get approved for.
Interest rates: It’s essential to compare the interest rates (APR) offered by different credit cards. You should choose a card with a competitive interest rate to minimize the cost of borrowing in case you have to carry a balance from month to month.
Fees: Pay attention to any annual fees, foreign transaction fees, late payment fees, or other charges associated with the credit card. Choosing a card with no annual fee or low fees can help save money, especially if you’re on a tight budget.
Rewards and benefits: Consider whether the credit card offers any rewards or benefits that align with your spending habits and lifestyle. Some cards offer cash back rewards, travel rewards, or discounts on purchases, which can add value to your spending.
Credit limit: Look for a credit card with a reasonable credit limit that matches your financial situation and spending needs. A higher credit limit can provide more flexibility but also requires responsible management to avoid overspending.
Security features: Choose a credit card with reliable security features, such as chip technology, fraud protection, and zero liability purchase protection, to protect against unauthorized transactions and identity theft.
Customer service: Consider the quality of customer service provided by the credit card provider. Prompt and helpful customer support can be crucial in resolving issues or addressing concerns.
Building credit: Select a credit card that reports your payment history to the major credit bureaus. Building positive credit history is essential for future financial activities, such as renting an apartment or applying for a mortgage.
Terms and conditions: Carefully review the terms and conditions of the credit card agreement, including the grace period, billing cycle, and repayment terms. Understanding these details can help avoid potentially costly surprises.
Overall, you should choose a credit card that fits your financial situation, spending habits, and goals, while also considering factors such as fees, rewards, security features, and credit building opportunities. Taking the time to research and compare different credit card options can help make an informed decision and set a solid foundation for managing credit responsibly.
Key credit card terms for new Canadians
Navigating a new country’s financial system can be difficult and there’s a lot to learn. We’ll help you feel more confident when choosing a credit card in Canada with the following list of key terms. Keep this page in mind when shopping for a credit card and come back if you see a term you’re unfamiliar with.
Annual fee: The annual fee is a yearly cost of a credit card. Not all credit cards have an annual fee, but those that do may offer additional benefits or rewards to justify the cost. Keep in mind that some cards offer the first year free, meaning the annual fee is waived for the first year. However, after that year is up, you’ll need to start paying the annual fee each year.
APR (annual percentage rate): The APR is the annualized interest rate charged on outstanding balances on the credit card. It represents the cost of borrowing money on the card. The APR can vary depending on factors such as the type of transaction (purchases, balance transfers, cash advances) and the cardholder’s credit score. The APR sets the amount of interest you pay for carrying a balance on your card.
Credit limit: This is the maximum amount of credit offered to you by the credit card issuer. It represents the total amount that can be charged to the credit card. Exceeding the credit limit may result in fees and penalties.
Grace period: The grace period is the time between the end of the billing cycle and the due date for payment. During this period, no interest is charged on new purchases if the balance is paid in full by the due date. Grace periods typically range from 21 to 25 days.
Minimum payment: The minimum payment is the lowest amount of money that a cardholder must pay toward their credit card balance by the due date to keep the account in good standing. It’s usually calculated as a percentage of the outstanding balance, typically around 1-3%, plus any fees and interest charges. Keep in mind that while you’re only required to pay the minimum balance, doing so will result in paying interest on the remaining balance.
Cash advance: A cash advance is a transaction where the cardholder withdraws cash from their credit card account. Cash advances often come with higher interest rates and fees compared to regular purchases, and interest accrues immediately without a grace period.
Balance transfer: A balance transfer is the process of moving the balance owed from one credit card to another, usually to take advantage of a lower interest rate or promotional offer. Balance transfers may have fees and should be carefully considered based on the terms and costs involved.
Foreign transaction fee: A foreign transaction fee is a fee charged by the credit card issuer for purchases made in a foreign currency or processed by a foreign bank. It’s typically a percentage of the transaction amount (usually 2.5%) and can add to the cost of international purchases. Some cards offer no foreign transaction fees, so if you travel a lot or make a lot of purchases in foreign countries, you should prioritize getting a card that waives these fees.
Credit score: A credit score is a representation, in the form of a number, of a person’s creditworthiness. It’s based on their credit history and financial behavior. Credit scores are used by lenders to assess the risk of extending credit to an individual. Higher credit scores indicate lower credit risk and may result in better loan terms and interest rates. Credit scores in Canada range from 300-900. The higher your score, the better your credit rating. You can increase your score by managing debts in a responsible way.
Credit report: A credit report is a detailed record of an individual’s credit history, including information about their credit accounts, payment history, credit inquiries, and public records such as bankruptcies or liens. Credit reports are used by lenders to evaluate an individual’s creditworthiness when applying for credit and they include your credit score.
Getting a credit card as a new Canadian
Getting a credit card in Canada is an exciting step in your financial plan. It’ll help you start building your credit history, manage your budget, and can even offer rewards, such as travel points or cash back.
It’s important to do your research and figure out the best card for your situation. You can make an appointment at your bank or search online to help you find the best option. Hopefully, you’re now more confident in taking the next step to getting your first credit card in Canada.
This article is provided for information purposes only. Any information, data, opinions, views, advice, recommendations or other content included in this article are solely those of the author and not of Scotiabank or its affiliates. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article is subject to change without notice. All third party sources are believed to be accurate and reliable as of the date of publication.