Credit Card in Canada: Basics, Types, Application, Fees & more
Similar to countries like United States, India, Germany and many others the importance of credit card in Canada cannot be ignored. For a better financial life, owning a plastic money in Canada is important.
So let’s get into the detail.
1. Concept of credit and debit cards
First of all, there are debit cards. These cards are directly linked to your bank account and the money you use for each transaction is debited directly from your account. Basically the principle is the same in many countries like United States, India, France, and others.
Then there is a second type of card called as credit card. As the word credit suggests, its basic objective is to let users buy things/pay for services etc. on credit i.e. free money, lent by the banks. Each transaction you make will be paid by the bank and after that, you will receive the statement at the end of each month. If you do not pay your credit card bill on time, you will have to pay interest and any other charges on the total amount of your monthly transactions.
2. Credit history and credit approval
In Canada, your financial life is difficult if you do not have a credit card. Simply because the bank and financial institutions base their trust in you based on your credit history. When you attempt to make any credit application (loan/credit card), the credit bureaus (Equifax and TransUnion) in charge of credit history will provide an index of your credit history calculated based on how you pay your debts. In other words, using their credit card and always paying their credit card bill on time is the only way to build a good credit history.
A bad credit history can result in denial of any future credit application in addition to the extra fees and the charges stay in your credit report for 7 years. So don’t take it lightly. On the other hand, people with a good credit history will have the advantage of being very well seen and treated by financial institutions.
3. The different types of credit cards
There are a variety of credit cards depending on whether you travel a lot by air, fill up a lot of gas, go to Starbucks often… To make it short, here are the different categories of credit cards offered by most of the banks in Canada..:
- Credit card rewards
- Travel credit card
- Low Interest Credit Card
- Student Credit Card
4. How to apply for a credit card?
Applying for and getting a credit card is very simple, especially if you have a job. There are two ways to apply for a credit card, either go directly to the bank and discuss it with the staff, or go to bank’s website and apply online.
Be prepared to give the following information:
- Your Social Insurance Number
- Personal information, including annual income
- Employer Information
If you are already the bank’s customer then they will have all your details. And in this case, the process will be more easy.
5. Credit card operation and fees.
Everyone should know that credit card fees/interest are very important. There are many fees charged by the banks such as:
- Interest on purchases and cash advances: This fee applies if you do not repay the money before the end of your interest-free period/ grace period.
- Interest-free period: The bank will choose for you (randomly) a due date (for example the 25th of each month) before which you must repay the money spent before any interest is charged to your account.
- Grace period: Is there to save you for 21 days from the date of your purchase. Note that there is no interest-free period and grace period for cash advances. Cash withdrawals, balance transfers, the use of cheques drawn on, the payment of certain bills and cash like transactions are considered cash advances.
- Minimum payment: If you are in debt, you must make a payment of $10 (plus interest and fees, or your entire balance if less than $10 plus interest and fees).
- Annual fees: Many of the cards carry annual fee or requires you to spend certain amount to avoid this fee.
Also note that many transactions with charged. Again these charges vary for each card and the bank. For example:
- Cash advance: $3.50 in Canada; $5 outside Canada. This varies for each card and issuing bank.
- Overlimit: Certain prefixed amount is charged on the day your statement is prepared, if your statement balance exceeds your credit limit.
- Payment declined: If a payment made to your credit card account is declined for any reason.
- Statement copy: Fixed amount is charged for requesting a copy of monthly statement. Separate charge is for requesting a transaction statement that is not associated with the current monthly statement.
- Statement of Account: Charge for statement request at an ABM or branch.