Borrowing Money - Credit Cards

What is a Credit Card?

A credit card, available through most banks and credit unions, is a card with a limit (e.g., $1,000), letting you make purchases up to that limit. Many credit cards will also let you withdraw cash advances within your limit. When you take out a cash advance on a credit card, interest will start accumulating immediately.

Like a line of credit, a credit card is a type of “revolving credit”, meaning that you can spend the amount you’ve borrowed, repay it, and borrow it again. For example, if you have a credit card limit of $2,000 and you spend $1,000 on your credit card, you will have $1,000 left to borrow.

Purchases and cash advances made with a credit card will gather interest – the higher the amount you owe and the longer it remains unpaid, the more interest you will owe. If you go over your limit or make a late payment, you may be charged fees, and/or assessed a higher rate of interest for up to a year. When added over a year, though, the interest charged on a credit card is usually lower than the interest charged on a payday loan.

Some credit cards charge an annual fee, though there are many that do not.

Which Credit Card is Right for Me?

If you are thinking of getting a credit card, shop around for one that best meets your needs. Pay attention to:

  • The interest rate (the lower, the better)
  • Any fees, including annual fees and fees for going over the limit or for making a late payment

The Financial Consumer Agency of Canada provides a tool to compare credit cards.

There are things to think about if you are considering getting a credit card. Remember that you have rights when getting a credit card or other type of loan.