Canada on Credit: What you Can and Can’t Use a Credit Card For

In this post, we outline some of the myths and misconceptions around credit card use in Canada, including information about finding a credit card that meets your needs among a myriad of options.

Key Takeaways

• There’s no one-size-fits-all credit card in Canada. You’ll need to compare the benefits and trade-offs to find the best card for your needs.
• Working with a Scotiabank Advisor is an effective way to learn more about which credit cards meet your needs and how to build your credit score in Canada.

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What is the best credit card to have in Canada?

The reality is that there’s no all encompassing credit card. Credit cards are designed for specific and unique needs. There are benefits and trade-offs that you can carefully weigh to find the card that best meets your needs and goals.

Broadly speaking, the different types of credit cards include:

• No annual fee cards: These generally have minimal perks and sometimes higher interest rates, but they’re good for building credit or occasional use without worrying about fees.
• Rewards cards: These cards usually offer cash-back or points based on your spending. There are sometimes different tiers for categories of spending, such as additional points for groceries, or gas, or dining out.
• Travel rewards: These cards are usually linked to greater rewards for travel, and may include some of the following: airline or hotel upgrades or freebies, lounge access, travel insurance, lower or no foreign transaction fees, and savings on car rentals.
• Student cards. These cards let you build your credit history and earn rewards for purchases, all while focusing on school.
• Cash back cards. Earn cashback on everyday purchases with cash back cards.

The Scotiabank Advice+ page is a helpful resource that has a specific article around this topic. Click here to learn more: Newcomers Guide to Credit Card Rewards

What makes a credit card the right choice?

Here are some quick tips for finding a credit card that meets your needs as a newcomer in Canada:

• Eligibility: Many credit cards in Canada have certain eligibility criteria that may be challenging for you to meet as a newcomer. For example, some cards have minimum income and/or credit score requirements – and you may not have a good credit score just yet. We dig into this in greater detail later in this article.
• Life stage: If you’re an international student or you’re new to Canada and learning to manage debt and credit, a secured card might better suit your needs. As you become more familiar with Canada’s credit system (and your credit score grows) you may find that basic (no annual fee) cards and/or rewards cards better suit your needs and financial literacy level.
• If you’re eligible for a wider range of credit cards, it’s helpful to try to match the credit card perks to your spending and lifestyle. If you travel often, a travel card might unlock better benefits – whereas those who stay close to home might prefer cards that reduce the cost of living through rewards or cash-back offers.
• If you’re considering a credit card with an annual fee, run the numbers to work out if the fees are offset by the benefits. It’s usually a good idea to review this annually to see if the credit card is still serving you, too.

This isn’t a complete list – and it may be helpful for you to work with an advisor to find a credit card that best suits your needs. You can book an appointment with a Scotiabank Advisor.

What credit cards are easiest to get for newcomers to Canada?

Whether or not it’s easy for you to get a credit card varies depending on your personal circumstances. But, generally, it might be helpful to work with a bank that has credit products designed for newcomers and advisors available to speak with you.

One example is the Scotiabank StartRight^(R) Program^‡, which offers approved newcomers up to a $15,000 credit limit on an unsecured card – even without a credit history. Under this program, newcomers may be eligible for different types of credit card with different benefits, including a travel and lifestyle focus, no annual fee, or rewards. Learn more and take a quiz to see which card is right for you.

What Can I and Can’t I Use a Credit Card For?

Credit cards are fairly widely accepted in Canada and many people use them for everything ranging from everyday expenses, like gas and groceries, to occasional expenses, like booking air-travel tickets.

But, there are some expenses that aren’t usually paid by credit card. This happens when the merchant (the person/company/legal entity) you’re paying doesn’t accept credit card payments.

Here are some examples of expenses that may not be payable by credit card:

• Rent, especially if you rent from a private landlord.
• Mortgage payments.
• Income taxes and government fees/penalties.
• Insurance premiums.
• Car lease or loan payments.
• Utilities payments.
• School fees, especially at public schools.

This isn’t a complete list and there may be some local businesses that prefer if you pay cash instead of credit, or they may not offer credit card payment as an option. It’s usually a good idea to keep some cash available in your checking account, linked to a debit card, or  physical cash, just in case.

Pros and Cons of Credit Cards

While credit cards can offer some advantages, they aren’t perfect – and credit cards do come with some drawbacks. We’ll dig into both the pros and cons of credit cards for newcomers in Canada here.

What are the advantages of having a credit card

As always, the advantages of having a credit card vary depending on your personal financial situation as well as how you use (or plan to use) your credit card.

Some of the advantages that come with having a credit card can include:

• Building or improving your credit score/history.

• The potential to earn rewards or cash-back with certain cards.

• Some credit cards offer purchase protection which can insure against damage, theft, or fraudulent charges.

• Some credit cards offer travel advantages, which may include travel insurance and/or emergency medical coverage for trips booked using the card, and low or no currency conversion fees, depending on your card.

• Improved cash flow, if you carefully manage your funds during the grace period and pay off your credit card in full each month.

• They are widely accepted in stores, online, and internationally which can make it more convenient to access rental cars and hotels. Many rental car or hotel providers may want a credit card on file to cover incidentals.

What are disadvantages of having a credit card?

One disadvantage of credit card use is the relatively high interest rates. If you carry a balance beyond the grace period, the interest rates tend to be higher than many other forms of debt. In our experience, average interest rates for credit cards in Canada may range between 19.99%-25.99%.

Cash advances usually incur interest payments from the date of withdrawal and interest rates are sometimes higher than for purchases, so they aren’t a good source for cash withdrawals.

Finally, there’s the potential risk that late or missed payments pose to your credit score. These seemingly minor mistakes can harm your credit score for years to come. In other words, the risk of making a credit card payment late or missing it altogether can be quite serious.

It’s important to know about the potential disadvantages of certain credit card usage so you understand how your credit card use can impact your finances. Knowledge is power when it comes to your personal finances, so we hope knowing these disadvantages can help you avoid paying those high interest rates.

When should you not use a credit card for purchases?

Using your credit card wisely (and paying it off in full each month) can help you build your credit score and manage your money. But, not all purchases are the right choice when it comes to credit card use.

Here are some examples of when it might be best to opt for alternative payment methods:

• It’s wise to weigh the additional costs if the merchant charges a fee for credit cards. Sometimes the rewards outweigh the costs, but it’s worth running the numbers .
• If the purchase would put you above 35% of your credit card limit, since a high credit card utilization rate can negatively impact your credit score.
• Impulse buys, since it can be easy to spend without thinking.
• Finally, if you can’t afford the payment at the end of the month then it’s wise to skip the purchase. This begs the question: how do you know if you can afford the purchase? That’s where a budget comes in. We suggest using Scotiabank’s budgeting guide (and the Money Finder Tool) to learn more about budgeting.

Credit Cards and Credit Scores

In the beginning, getting a credit card may seem like a bit of a riddle: A credit card can help you build your credit score (if you manage the debt responsibly) but it’s hard to build your credit score without a credit card.

It’s true – the two can be interlinked, but your credit score isn’t the only factor that determines whether or not you may be eligible for a credit card. Nor is there ‘one universal score’ that means you’ll be approved for a credit card.

So what are lenders looking for?

According to this helpful Advice+ article from Scotiabank, lenders may look at your employment, your debt mix, your income, and other factors when deciding whether to approve your credit card application, in addition to your credit score.

What is a good credit score for credit card approval?

According to the Scotiabank Advice+ article, there’s no universal credit score requirement to get a credit card, but a credit score of 660 or higher may weigh positively if you’re applying for one (though it doesn’t guarantee approval).

How to build your credit score with a credit card

This is complicated, and we go into the credit history element of how credit cards can build your credit score in more detail in an earlier article. But, briefly, using your credit card responsibly can help you build your credit score over time – especially if you keep your balance below about 30% of your limit and pay your credit card minimum payments on time every time. Ideally, it’s a good habit to pay your balance in full each month.

Find the Right Credit Card

A Scotiabank Advisor can help you apply for a credit card that suits your needs and goals, as well as help you with financial planning, managing debt, and budgeting for you and your family. This is really helpful for newcomers who are still getting established in Canada and those who are considering switching banks.

If you’re keen to get connected with someone to talk about your finances, you can quickly and easily book an online appointment with a Scotiabank Advisor.

This article is provided for information purposes only. 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, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly, and action is taken based on the latest available information.