Debit vs. credit cards

There are two types of bank cards in the Canadian banking system: the debit card and the credit card.

Debit cards

A debit card is given to you as soon as you open your Canadian bank account.

The debit card is linked to your chequing account and allows you only to spend the money you already have in your account. Overdrafts are not permitted.

You can use your debit card to:

• Withdraw and deposit cash at ATMs
• Pay for purchases in store
• Pay for purchases online

Upon each purchase, the amount will immediately be deducted from the checking account associated with your debit card.

Your employer will also pay your wages into the account associated with your debit card.

Credit cards

When you open your bank account, you can also request a credit card. You can use it to make purchases in store and online.

Every time you do so, it is the card issuer that pays on your behalf. The money is not automatically deducted from your chequing account.

At the end of the month, you will receive a bill for all your purchases and it is your responsibility to pay it off.

It is important to remember to pay off your balance on time every month, otherwise you will be burdened with high interest rates.

Which one to use?

If you are not used to the idea of credit cards, it can seem unnecessarily complicated. But there are clear advantages to using a credit card for daily transactions, which is what most Canadians do:

1. You build your Canadian credit score.
2. Some credit cards offer cash back or other loyalty rewards.
3. Credit cards offer consumer protections, including warranties and insurance.
4. It is easier to contest unauthorised charges on a credit card than a debit card, as it is the card issuer that fronts the payment on your behalf.

If you are planning to stay in Canada for the long term, it is important to regularly use your credit card. This will allow you to build up a credit score and become eligible for loans.

The biggest caveat to benefitting from these perks is that it is your responsibility to ensure on time payments every month. Your credit score will be poor if you forget to make your credit card payments on time or if you can’t pay them. This can impact your future, so be very careful not to build up a bad credit history.

Credit score

Your credit score (from 300 to 900) can be built by regularly using your credit card and paying off the balance on time every month.

If you do this, your bank will see you as a reliable borrower and therefore your credit score (and credit limit) will gradually increase.

This is a good thing because a credit check may be requested by landlords before letting you rent their apartment, for example.

It is necessary to have a good credit score, and the score will only be good if you pay your credit card bill on time.