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How to use a credit card effectively

March 7, 2022

In Canada, two types of payment cards are used: Debit and credit. The credit card can be of great use to you to purchase goods and essentials upon your arrival to the country, to pay for purchases at merchants or to make purchases and reservations online. It can also allow you to build your credit rating and consolidate all of your monthly expenses into only one payment thereafter and thus take advantage of related benefits (cash back, travel insurance, etc1 .).

Although profitable, the credit card must be used wisely and in moderation. Here are a few tips to make the best use of it and make the most of its benefits.

How a credit card works

Debit cards and credit cards are the most commonly used payment methods in Canada. So there are hard to do without. But if the amount of each expense made with your debit card is automatically withdrawn from your current account, it works differently with a credit card.

When you use your credit card to pay for goods or services, the financial institution that issued your card temporarily advances you the funds required for payment, which you must reimburse later. The credit granted to you is also a debt. Sometimes we tend to forget…

You must be 18 or older to obtain a credit card. Certain credit cards require annual fees, while others are free of charge. In addition, most credit cards offer certain benefits such as travel insurance and other types of protection.2

Each credit card has an authorized credit limit, personalized for each cardholder. This limit determines the maximum number of purchases you can make on your card.

A statement is produced every month, allowing you to see the list of all your purchases, the amount you must pay back (balance) and the deadline by which you must pay back this balance. You must respect this date to avoid paying interest charges. The interest rate applied to outstanding payments varies from one card to another and is generally quite high, except for certain low-rate cards.

More than a payment tool

In addition to being a convenient payment method, the credit card allows you to build your A credit report. A good credit report confirms that you are a reliable payer at the financial institution to which you apply for financing, for example, for the purchase of a home or car.

In fact, your credit report indicates your ability to meet your financial commitments. A credit report is a summary of your credit history. It is the main tool used by lenders, insurers, property owners and employers to get an idea of your financial reputation. Your credit report is created as of the first time you ever borrow. A credit card is a good way to start your credit report and sets the stage for future financing requests related to larger purchases.

What’s in your credit report

  • The number of your loans and the cumulative number of your debts
  • The reimbursement of your debts and payments
  • Your reimbursement habits, and therefore your late payments!
  • The number of times your report is accessed
  • The amount of credit applications you have made
  • The type of credit you use

How to use your credit card to maintain a good credit report

  1. Opt for a realistic credit limit based on your financial situation and respect it.
  2. Always use your credit card below your authorized limit.
  3. Limit the amount of credit applications and requests to increase your credit limit.
  4. Pay your balance in full every month before the due date on your statement. If you are unable to pay your monthly balance on time, make a payment as soon as possible, before the next statement is issued. This way, you will save on interest charges, as they accumulate from the date of your purchase until the balance is paid in full.
  5. Set an automatic payment of your balance to avoid forgetting.
  6. Don’t use your credit card at the ATM to withdraw cash or get an advance. Interest and withdrawal fees will apply immediately.

The billing cycle

Each billing cycle has a grace period, starting with the new statement.

This is a period (usually 21 days) during which you do not pay interest on your purchases if you reimburse your balance in full by the due date on your statement.


Have you paid the full credit card balance before the end of the 21-day billing cycle? You will not be charged any interest.

Are you considering only making the minimum payment? Note that this amount corresponds to a fraction (usually 5%) of the total balance. Interest will then accumulate, adding to the total balance you owe until you reimburse it in full, which can easily snowball and cost you more in the long run.

Therefore, it is recommended that you always try to reimburse more than the minimum payment due on your statement.

Tips to avoid misuse of your credit card

Late payments, exceeding your authorized credit limit, and repeated use of your card to its maximum capacity have a direct impact on your credit rating. For example, if your card balance is always at the limit, you become more of a risk for lenders and your rating (credit score) will be affected.

A best way good way to prevent these consequences is to integrate the management of your card into your budget. Moreover, paying for your everyday expenses using your credit card and tracking them on your online statement are great ways to control and account for your expenditures!

Discipline and moderation are your best allies when using a credit card. Because the consequences of using this means of payment can be as positive as they are negative. It is how you manage it that will make all the difference.

Desjardins’ offer to newcomers

To make things easier for you as you start out in Canada, Desjardins offers a banking solution specially designed for the needs of newcomers.

This offer includes, among other things, a credit card with no annual fee that requires no credit history or security deposit.

For full details, see the dedicated page.

Useful ressource:

 1.  Certain conditions apply