Credit Cards

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This page originally created by Zen L. and Valentin P. (2022-2023)

Credit Cards (Source:Nick Youngson CC)

What Are Credit Cards?[edit]

Credit cards are payment cards issued by banks, credit unions, and other issuers to cardholders to buy goods and services using borrowed funds from the issuer.

How Credit Cards Work[edit]

Credit cards essentially provide a short-term loan. The company that issues the credit card allows the cardholder to run up a bill without paying up front with the expectation that the cardholder will repay that down the line. The credit card issuer will send a bill to the cardholder once a month that provides a list of all of the purchases made using the credit card and a minimum payment to be paid in order to keep the credit card in good standing. If the balance is paid in full by the due date, no interest will be charged, unless cash advances are taken. If the balance is not paid in full by the due date, interest charges will be incurred.


Credit cards can be used to purchase goods and services when you don’t have the cash readily available to do so, online purchases, payments, and bookings, and when companies or sellers don’t accept cash as a payment.

Advantages of Credit Cards[edit]

Advantages include:

  • Let you borrow money instantly to make purchases
  • Allow you to carry less cash
  • Let you get cash advances
  • List purchases in one monthly statement
  • Help you establish a credit history and earn a good credit score
  • Provide a free form of credit if you pay the balance in full and on time
  • Provide a convenient payment method for purchases made on the internet and over the telephone
  • Have limited liability in case of fraudulent use
  • May offer extended warranty and purchase protection benefits on most credit card purchases
  • May offer various rewards or benefits depending on the credit card issuer, such as 2% cashback on all purchases, travel rewards points, or automatic warranties.

Disadvantages of Credit Cards[edit]

Disadvantages include:

  • Have additional fees
  • Allow you to build up more debt than you can handle
  • Damage your credit score if your payments are regularly late or you don’t repay
  • Cost much more than some other forms of credit, such as a line of credit or a personal loan, when interest charges are incurred
  • Interest is immediately incurred when you take a cash advance
  • Most have a spending limit
  • Many credit cards have an annual fee
  • Have a high interest rate
  • Possibility of credit card fraud being committed

Comparing Credit Cards to Debit Cards[edit]

When you make purchases using a credit card, you spend money you don’t have in your account that you have to repay at a later date. The longer it takes to pay back the money spent, the more interest will be incurred.

When you make purchases using a debit card, you spend money that you have in your own account and there is no interest rate.

Requirements to get a Credit Card in Canada[edit]

Components of Credit Score (Source: FINRED)
  • Be the age of majority — 18 or 19, depending on your home province
  • Be a permanent resident or citizen of Canada
  • Need to meet the minimum annual income requirement
  • Need to have some kind of asset for collateral
  • Need to have a sustainable debt-to-income ratio, (all of your monthly debt payments divided by your gross monthly income)
  • Need an acceptable credit score
  • Need a social insurance number

Further Reading[edit]


1. Canada, F. C. A. of. (2013, August 14). 4.3 Credit cards. Retrieved 24 January 2023.

2. What you need to know about minimum credit card payments. (n.d.). Retrieved 25 January 2023.

3. Applying For a Credit Card | Tips and Advice | CIBC. (n.d.). Retrieved 26 January 2023.

4. What you need to know about getting your first credit card | Manulife Bank. (n.d.). Retrieved 26 January 2023.

5. Office of Financial Readiness. (n.d.). The Office of Financial Readiness. Retrieved on 26 January 2023.

‌6. Youngson CC, N., & BY-SA 3.0 Pix4free. (n.d.). Free of Charge Creative Commons Credit Cards Image - Financial Individual. Retrieved on 26 January 2023. ‌