Basic credit card tips
for new account holders
Find out how to take advantage of your credit card and successfully manage your money
May 25, 2023
Getting a credit card is likely one of the most financially empowering moments of your life. It’s a fantastic way to establish a good credit score while experiencing greater financial freedom and flexibility.
While credit cards can improve your quality of life, they must be used responsibly. According to Statistique Canada, the average national credit card debt increases by 13.8% every year, with Canadians having added over $800 million to their credit card debt in December 2022.
To help you make the most of your credit card, we’ve identified seven basic credit card tips for new account holders to maximize the benefits and avoid debt.
Set a strict budget
It’s absolutely crucial that you budget enough to cover your monthly card payments. If you’re unable to do this, your spending habits may negatively influence your credit score. You’ll also end up accruing even more interest, pushing your balance owed up rather than down.
Your bank will not issue you with a credit limit which exceeds your means, but they certainly cannot control your spending or the financial risks you take. Track your expenses and avoid large purchases that you’d usually make with a debit card to stick to your budget.
Spend below your credit limit
It may be tempting to immediately utilize the full potential of your credit card. This is highly discouraged. Spending below your credit limit is a crucial strategy for building a good credit score.
Financial experts tend to agree on the 35% benchmark. In other words, don’t exceed 35% of your credit within the month. Some experts even recommend working around a more conservative 10%. Assess your unique needs and find a comfortable compromise between 10-35%.
Take note of rewards and bonus offerings
Many credit cards will offer an array of rather enticing bonus rewards for select spending categories. For example, your account may offer ten times the rewards for purchasing groceries or gas. Researching the types of purchases that qualify for bonuses is an effective strategy for maximizing the benefits of your new credit card.
Credit cards in Canada are sometimes issued with special sign-up or ‘welcome’ bonuses. In order to utilize these, you need to meet specified spending requirements within a particular time period. You could benefit from rewards worth hundreds of dollars if you strategically utilize your new credit card’s sign-up bonus.
Avoid paying interest
Regardless of your credit account’s annual percentage rate (APR), you don’t need to pay additional interest if you use your card responsibly. Interest can be avoided by paying your credit bill, in full, every month. If you carry credit into the next month, then you start paying interest—an unnecessary financial burden.
Ensure you monitor your credit account’s grace period. The average grace period for a Canadian credit account is 21 days. Yours may differ, so it is crucial to clarify your grace period when asking for a new credit card to avoid paying excess interest.
Look for perks and benefits
Many debit and cash accounts offer perks—financial and otherwise. But often, credit cards do too. With a credit card, you could enjoy a variety of benefits that may not depend on your spending. To fully capitalize on these perks, you need to activate them when you create your credit account. Do this at your first customer service meeting to minimize admin.
Once you’ve opened your credit card, you can be upgraded to ‘prestige’ or ‘elite’ status in airport lounges and at select hotels. Furthermore, many credit cards in Canada offer insurance coverage for car rentals and travel. Some will even cover trip cancellation insurance and purchase protection insurance.
Always pay more than the minimum required
Your credit card statement will display the minimum payment due. This refers to the smallest possible payment you could make without negatively impacting the status of your account. This fee typically covers interest, fees, and a minor proportion of your outstanding balance.
This means that you’re not actually paying off your credit. Therefore, paying the minimum—and only the minimum—means that you’ll pay substantially more in the long run. Furthermore, it puts your balance at risk of accumulating at an exponential rate.
Don’t shy away from using your card
Many first-time credit card owners have anxieties about actually using their cards. However, maintaining a $0 balance doesn’t benefit your credit score. Canadian banks want to see that you actually know how to use your card wisely.
Regularly checking your account and remembering these basic credit card tips for new account holders will ensure that you don’t overspend and allows you to reap the rewards of a credit card with confidence.