Credit Cards in Canada: How They Work and How to Choose

How a credit card works

You can use a credit card to pay for goods and services at a checkout, over the phone, online or by mail ^[2]. The money is borrowed. Each month you get a statement, and what you do with it decides whether the card costs you anything beyond the purchases themselves. If you pay the whole balance by the due date, you generally pay no interest on purchases. If you carry a balance, you pay interest on it, and the higher the interest rate, the more you pay ^[3]. For the habits that build a credit history, see How to Build Credit in Canada.

Types of transactions

How interest works

Different rates apply to different types of transactions. FCAC's example is a card where the rate for regular purchases may be 19% but 22% for cash advances ^[2]. The rate matters most if you regularly carry a balance ^[3]. The reliable way to avoid interest on purchases is to pay the full statement balance by the due date.

The minimum payment trap

Your minimum payment is either a flat dollar amount, usually $10, plus any interest and fees, or the higher of a dollar amount, typically $10, or a percentage of your outstanding balance, typically 3%. Since August 1, 2025, the credit card minimum payment for Quebec residents is 5% ^[4]. Paying only the minimum means it takes you longer to pay off your balance and you pay more interest ^[4].

FCAC gives this example for a $2,000 balance at 18% interest: paying a $60 monthly minimum takes 3 years and 11 months and costs $793 in interest, while paying the minimum plus $100 a month takes 1 year and 2 months and costs $231 in interest ^[4]. If your card issuer is a federally regulated financial institution, your statements must show how long it will take to pay off your balance by paying only the minimum ^[4].

Fees to look for

• Annual fee. Some cards charge one, and you can choose a card with no annual fee. FCAC notes some no-fee cards offer similar rewards and benefits to cards that charge a fee ^[3].
• Cash advance fee. It may be a fixed amount, a percentage of the amount, or a fixed amount plus a percentage ^[2].
• Over-limit fee. Applies when you go over your credit limit, though federally regulated institutions cannot charge it for temporary merchant holds ^[2].
• Other charges. These can include reprinting fees, dishonoured payment fees and inactive account fees ^[2].
• Foreign currency. Financial institutions calculate foreign currency charges in different ways, usually with an exchange rate for the purchase plus a foreign currency conversion charge ^[2]. Check this before you use your card abroad.

Choosing a card

Start with what you actually need. FCAC describes the main types ^[3]:

• Low-interest cards have lower rates but may charge annual fees.
• Rewards cards can earn cash back or discounts. Before choosing one, consider how likely you are to use each benefit and how long it will take you to earn rewards.
• Student cards often have lower credit limits than standard cards.
• Retail cards earn rewards, such as discounts, at a specific retailer.
• Secured cards require a security deposit, and your credit limit is normally equal to or higher than the deposit. FCAC points to them if you don't have a credit history or if you have bad credit.

FCAC offers a comparison tool for rates, fees and rewards, and a payment calculator, on its credit cards page ^[1]. A newcomer who has no credit history may also want to read How to Build Credit in Canada, which covers secured cards and newcomer options.

Keeping your card safe

• Keep your card in a safe place, keep it in sight whenever you make a purchase, and never lend it to anyone, not even family members ^[5].
• Sign the back of a new card as soon as you get it ^[5].
• Keep your PIN confidential and never share it. If you share your PIN, you may be responsible for transactions you didn't make or approve ^[5][6].
• Report a lost or stolen card to your card issuer immediately, and note who you spoke to and when ^[5].
• Notify your card issuer without delay of any unauthorized or suspicious transaction ^[6].

FCAC says the maximum amount you can be responsible for on a bank-issued credit card is $50, unless you were grossly negligent in protecting your account information, and that financial institutions must fully investigate a transaction you dispute ^[6].