Your first credit card in Canada

A first credit card is less about rewards and more about building a record that lenders, landlords and even some employers will look at for years. Get the habits right and the rewards take care of themselves.

How a credit card bill works

Every month your card produces a statement. It lists what you spent during the statement period, your balance, a minimum payment and a due date.

• Pay the full statement balance by the due date and you pay no interest on purchases. Canadian rules give you an interest-free grace period of at least 21 days between the statement date and the due date.
• Pay less than the full balance and interest is charged on purchases, usually at a rate of around 20% a year. On most cards, that interest also runs from the day of each purchase, not just on the leftover amount.
• Miss the minimum payment and it can be reported as a late payment on your credit file. Some cards also raise your interest rate after repeated misses.

Cash advances (cash from an ATM, and “cash-like” charges such as money transfers or gambling) have no grace period. Interest starts the same day, usually at a higher rate, and there’s often a fee too.

The one rule: treat your card like a debit card that builds credit. Only spend what’s already in your chequing account, and pay the statement in full every month.

Choosing your first card

For a first card, the order of priorities is simple:

1. No annual fee. You don’t yet know how much you’ll spend, and a fee eats into small rewards.
2. Approval you can realistically get. Student cards, “starter” cards from your own bank, and secured cards (where you put down a deposit that becomes your limit) are designed for people without a credit history.
3. Rewards that match your life. Flat cash back is the easiest. Some no-fee cards pay more on groceries, gas or transit; pick the category where you spend most.
4. A bank you already use. Approval is often easier, and payments between accounts are instant.

Avoid applying for several cards in a short period. Each application usually triggers a “hard inquiry” on your credit report, and a cluster of them can lower your score.

The three habits that build a strong score

Canadian credit scores run from 300 to 900. Equifax and TransUnion each keep their own file on you, and both let you see your report for free.

1. Pay on time, every time. Payment history is the biggest factor. Set up an automatic payment for the full statement balance so a busy month never becomes a late payment.
2. Keep your balance well below your limit. Using less than about 30% of your limit when the statement is issued is a common guideline. On a $1,000 limit, that means a statement balance under $300. If you spend more, pay part of it before the statement date.
3. Keep your oldest card open. The age of your credit history matters. A no-fee first card is easy to keep for decades, even once you’ve moved on to fancier cards.

After six to twelve months

With a year of on-time payments, you’ll usually qualify for a higher limit and for cards with stronger rewards. That’s the time to read our guides on cash back strategies and travel rewards.

How Fruga helps

Once you have more than one card, Fruga tells you which one earns the most at each online checkout. Point at the Place order button and the best card appears. You never enter a card number, and nothing leaves your browser.