Opening a bank account in Canada

Credit and debit cards: an explanation of the Canadian banking system

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

What is a debit card?

The debit card is linked to your current account and allows you to spend the money you have in your account. Overdrafts are not permitted. You will be able to pay in stores and withdraw cash with your debit card. Online purchases cannot be made with your debit card.

Your transactions will be charged to your account immediately. A debit card is given to you as soon as you open your Canadian bank account.

Your employer will also pay your wages into this account.

What is a credit card?

The credit card really is a credit card, meaning that when you open your bank account and decide that you want one (for example, to make online purchases), your banker will apply to the Visa or Mastercard credit agencies. Depending on the collateral you can provide (such as your Canadian payslip), your authorised credit will be higher or lower. Generally speaking, you will have an authorised credit of $500 as a new customer if you are offered a credit card.

Your credit card will be stamped with your bank’s logo, but will actually be managed by the credit card company you choose (Visa or Mastercard).

If you wish, you can also pay for purchases in stores with your credit card, but it’s not recommended that you make withdrawals with it.

The Canadian government has a comprehensive FAQ page on how credit works in Canada: Credit Cards.

How do I manage my credit card?

If you use your credit card to carry out transactions, you will have a bill to pay at the end of the month. The credit card isn’t debited immediately – it’s down to you to pay your expenses at the end of the month on your online bank account. Most importantly, remember to do it on time!

On your online bank, you will see an account dedicated solely to your credit card, with a breakdown of your expenses and the deadline to pay your bill.
If you have spent money on credit and cannot afford to pay it back, or forget to pay it back, you could end up paying huge interest charges of up to 20%.

If you cannot pay your bill, you must at least make a minimum payment (which is usually $10), but you’ll still pay interest.

Using your credit card is important, especially if you’re planning to stay in Canada for the long term. It will allow you to build up a credit rating (and therefore be eligible for a credit check – we discuss this below).

If, however, you have no intention of staying in Canada at all AND you usually have difficulty managing your money (forgetfulness, often subject to agios, difficulty reducing your spending) we advise you to use your credit card as little as possible. After all, you can use your debit card on a daily basis unless you have to make online purchases! It’s easier to manage and you will only be able to spend the money you have available.

What is a credit check?

Your credit rating is directly linked to your credit card. If you have a credit card which you use to make regular payments, you will have a credit score (a credit history) which is used as an indicator of whether or not you are a good payer.

The credit check may be requested by landlords before renting you their apartment (for example, if you are moving to Canada and buying an apartment).

It is necessary to have a good credit score in this case, and the score will only be good if you pay your credit card bill on time and spend enough money on your credit card (but not too much!). Credit scores range from 300 (very bad) to 900 (very good).

Your credit score will be poor if you forget to make your credit card payments on time or if you can’t pay them.