Best credit cards for beginners

Getting your own credit card is like a right of passage when you turn 18. That being said, because you've likely never had to worry about credit cards and building credit before today, we understand why it may be a daunting experience for you.

Luckily, the team at KOHO has got you covered. If you're looking for the best credit cards for beginners, check out our comprehensive credit card guide below to learn more about annual fees, cash rewards, how to get approved, and more.

Why choose a beginner credit card?

To put it simply, building credit as early as possible can help you achieve your financial goals and other milestones later in life. Whether your dream is to buy a home, a new fancy car, or travel around the world, having a good and long credit history can help make it happen.

Because you're starting from scratch, a beginner credit card is great, given that you won't have a credit history. With starter credit cards, you'll notice that the prerequisites for approval are generally not as stringent, such as a minimum credit score, yearly salary, minimum spending per year, high annual fees, and more, making it easier to be approved if you're a student, young professional, or a newcomer to Canada.

Types of credit cards for beginners

Now, before we get into the best credit cards for beginners, you'll notice that our list contains a few of the following. Each credit card offers various benefits and is meant to be tailored to your unique needs as a beginner. Here's a closer look at the different credit cards:

Rewards Credit Cards

Rewards credit cards are among some of the most common types of credit cards for beginners and some of the most popular. I mean, who doesn't want to earn rewards while spending money? Typically, you'll receive a percent back on your purchases for each dollar amount you spend on eligible purchases. Different categories of spending yield higher cash rewards than others as well. Spending categories include grocery stores, drugstore purchases, gas, travel, restaurants, streaming services and other eligible purchases.

Once you collect enough cash rewards, you'll be able to redeem them for gift cards, travel purchases, statement credit, and more.

0% APR credit cards

Credit cards with 0% APR provide cardholders with 0% annual interest on their purchases. But there's a catch. This 0% APR is typically given to new credit card users as a promotional deal when they first sign up. Once the promotional deal has ended, they'll need to pay the credit card's actual annual percentage rate. We should also note that no credit card company in Canada offers 0% APR to customers beyond a promotional deal.

Low-interest credit cards

Low-interest credit cards are similar to 0% APR credit cards. These credit cards often also feature balance transfer features and cash advances. But, your low-interest APR will, again, likely be a promotional deal that expires after a certain time.

Student credit cards

Student credit cards are available to those studying at a post-secondary institution in Canada. While student credit cards won't require a certain credit history upon approval, you will likely need to have some form of monthly income that proves to your credit card issuer that you are able to pay your monthly statement on time.

With student credit cards, you can expect student cash-back rewards and other benefits, depending on which card you use. Just keep in mind that you may face higher interest rates with a student credit card than with other available credit cards, given that you could be viewed as a high-risk borrower at first.

The best credit cards for beginners in Canada

With the right credit card, you can make your money and spending habits work in your favour. Here are some of the best credit cards for beginners in Canada:

1. KOHO Prepaid Mastercard (Top Pick)

The KOHO Prepaid Mastercard is a fantastic standard credit card for young Canadians and anyone who's looking to avoid traditional credit card drawbacks.

Key features

One of the most notable features you'll experience with this prepaid credit card is that there are no annual fees or interest on your purchases. Additionally, because there's no credit check upon approval, you'll be approved within minutes, stress-free. With KOHO, you'll have the opportunity to earn up to 1% in cash-back rewards when you make eligible purchases and up to 2% on three major categories. Better yet, you can expect zero foreign transaction fees when you make purchases from online stores overseas. And, if you want to stay on top of your spending habits, KOHO offers an easy-to-use app that features tools for budgeting.

Pros

• Zero interest on purchases.

• No credit history is required.

• Cash-back varies depending on the plan and types of purchases.

• Zero foreign transaction fees with paid plans.

• Get on average $120 in cash rewards.

Cons

• Features that help with building credit will cost an additional $10 per month.

2. Neo Financial Mastercard

Next, we have the Neo Financial Mastercard. This particular card is recommended for those living in urban areas where Neo is available and those who love a practical cash rewards credit card.

Key Features

A notable feature of the Neo Financial Mastercard is that users can get maximum rewards with up to 5% cash back with partnered retailers like Shell, Hudson Bay, Best Western Hotels & Spas, Mr. Lube, David's Tea, and more! With a lenient approval process, newcomers to Canada, students, and those with no credit history at all. Similar to the KOHO Prepaid Mastercard, users will also benefit from no annual fees. You'll also have a maximum credit limit of $10,000 for more flexibility with your purchases if approved.

Pros

• No annual fees.

• Up to 5% in cash back rewards with certain retailers.

• No credit history is required.

• Get approved for up to $10,000 in credit limit.

• Average total cash back per year is $366 per year.

Cons

• Purchase credit rate ranges between 19.99% and 29.99%.

• May only benefit those living in urban areas where partnered retailers are located.

3. Tangerine Money-Back Credit Card

The Tangerine Money-Back Credit Card is recommended for budget-conscious individuals with predictable spending habits. They know where they like to shop and how to spend their money, and are totally fine without venturing into new everyday purchases.

Key Features

With the Tangerine Money-Back Credit Card, customers are able to choose up to three spending categories that offer 2% cash-back rewards. Whether drugstore purchases, grocery stores, gas, travel purchases, and more, your cash reward benefits are completely customizable. For purchases outside of the categories you prioritize, you still receive 0.5% in cash-back rewards. Additionally, Canadians will also experience zero annual fees, similar to the KOHO Prepaid Mastercard and the Neo Financial Mastercard. One thing to note, however, is that with this credit card, you'll need to make at least $12,000 a year to qualify, which may not be suitable for full-time students.

Pros

• No annual fees.

• You choose which retailers you earn the most cash-back rewards from.

• You'll get a welcome bonus of $100 when approved.

• Balance transfers are possible.

Cons

• Limited travel insurance coverage compared to other credit cards available.

• Purchases in non-prioritized categories receive minimal cash back.

• No other wow-worth perks.

4. Simplii Financial Cash Back Visa

Next up, we have the Simplii Financial Cash Back Visa. With no credit history required for newcomers to Canada through the Simplii New to Canada Program, this credit card is a great option for those who have recently moved from overseas.

Key Features

This rewards credit card offers up to 4% cash back on dining, 1.5% on groceries, gas, and recurring bills, up to $5000. You'll even get cash back on global money transfers! Other purchases will only receive 0.5% cash back. Again, you'll also benefit from no annual fees. However, similar to the Tangerine credit card, you'll need to make a minimum of $15,000 a year to qualify and have not filed for bankruptcy in the past seven years.

Pros

• No annual fees.

• Cash back rewards on global money transfers.

• Earn up to 4% on eligible purchases and 1.5% on others.

• Balance transfers are possible.

• Compatible with mobile wallets.

• Up to 10% in rewards for your first four months.

Cons

• No travel insurance is included.

• 0.5% in rewards is poor compared to other credit card options out there.

5. BMO Cash Back Mastercard

Moving on, we have the BMO Cash Back Mastercard, which is great for building credit while being a rewards credit card at the same time.

Key Features

The BMO Cash Back Mastercard is included in the BMO NewStart Program, which means there is no credit check required for newcomers to Canada. This rewards credit card offers 3% cash back on grocery stores, 1% back on recurring monthly bills, and 0.5% on everything else! Similar to other starter credit cards, you'll have no annual fee. Note that you will need to make at least $15,000 yearly to be approved for this credit card. However, with your account opening, you'll get a welcome bonus of $150.

Pros

• 
  No annual fee.

• No credit check for newcomers to Canada.

• Low minimum annual salary.

• 3% cash back on groceries and 1% back on monthly bills.

• Welcome bonus of $150.

Cons

• 0.5% rewards on other purchases outside of spending categories is low.

• No insurance coverage is included.

6. Scotiabank Scene+ Visa

For those in search of a starter credit card who also loves movies and entertainment, look no further than the Scotiabank Scene+ Visa. This card is ideal for students looking for student credit cards and entertainment lovers.

Key Features

With this starter credit card, you'll earn up to 2 points for every $1 spent on eligible purchases from Cineplex, on dining, and groceries and 1 point for every dollar spent outside of these eligible stores. Furthermore, for balance transfers, you'll be charged 22.99%. Note that to qualify, you will need to make a minimum of $12,000 a year.

Pros & Cons

• No annual fees

• Earn Scene+ points for movies, dining, and groceries.

• Points can be redeemed for gift cards, statement credits, and other rewards.

• Great for students making $12,000 or more while studying.

Cons

• Limited insurance coverage available.

7. Desjardins Flexi Visa

The Desjardins Flexi Visa is perfect for those who have credit cards but don't often carry a balance on them for long.

Key Features

With the Desjardins Flexi Visa, it's important to note that this is not a rewards credit card. That said, compared to other credit cards out there, it offers an interest rate of only 10.9% and no annual fee. Furthermore, there are no minimum spending requirements needed to hold the card. You also won't need a minimum salary to qualify. For balance transfers, you'll be charged 12.9%, which again is significantly lower than what other starter credit cards currently offer. Additionally, mobile device insurance, travel insurance, and other coverage are available.

Pros

• No annual fee.

• Insurance coverage is available.

• 10.9% interest rate.
  No minimum salary or minimum spending is required.

Cons

• This is not a rewards credit card.

• No welcome bonus offered for account opening.

8. RBC ION Visa Card

The RBC ION Visa Card is recommended for young Canadians who are interested in building credit while making travel purchases.

Key Features

With the RBC ION Visa Card, users will earn Avion points on groceries, travel, and streaming services. This equals to about 1.5 points per dollar spent. Additionally, you'll save 3 cents per litre when you fuel up at Petro-Canada stations across Canada. Similar to others, there is no annual fee with this rewards credit card. Upon your account opening, you'll receive 2,500 points, which is roughly $25. You can anticipate a 22.99% interest rate for cash advances and balance transfers. Lastly, you won't need a minimum salary requirement to be eligible for the RBC ION Visa Card.

Pros

• No annual fee.

• $25 account opening bonus.

• 1.5 points collected per dollar spent.

• Save three cents a litre at Petrol-Canada stations.

• No minimum spending or salary requirement for eligibility.

Cons

• Rewards aren't as favourable as other RBC Visas available.

• Minimum insurance coverage is offered.

9. American Express Cobalt® Card

Moving on, we have the American Express Cobalt® Card. This credit card is ideal for foodies and travel lovers alike.

Key Features

Looking for a big account opening bonus? The American Express Cobalt® Card may be the card you're looking for. Upon opening your account, you'll receive a $300 reward. For every dollar spent, you'll get a 5-point return. Furthermore, you'll be able to redeem your points on Ticketmaster, travel purchases, statement credit, gift cards, and more. However, unlike other rewards credit cards, balance transfers aren't available. You'll also need to pay an annual fee of $155.88.

Pros

• $300 account opening bonus.

• 5 points for every dollar spent.

• 10 types of insurance coverage are included.

• No minimum salary is required for approval.

• Points are redeemable for numerous benefits.

Cons

• Annual fee of $155.88.

• No balance transfers.

10. Capital One QuicksilverOne Cash Rewards Credit Card

The Capital One QuicksilverOne Cash Rewards Credit Card is ideal for those with lower credit scores looking to build credit.

Key Features

While the Capital One QuicksilverOne Cash Rewards Credit Card doesn't offer an account opening bonus, credit card users can get between 1.5% and 5% cash back on eligible purchases.

As we said, this credit card is ideal for those with lower credit scores focusing on building credit over time. For example, all users are automatically considered for a credit limit increase after six months.

A notable feature of this credit card is that there are no foreign transaction fees, and balance transfers are permitted at a promotional rate. That said, this credit card has a high APR of 29.99% and an annual fee of $39.

Pros

• Great for building credit.

• Lower-than-average credit is welcomed.

• No foreign transaction fees.

• Unlimited 1.5% cash back on all purchases.

• Unlimited 5% cash back on hotels and rental cars booked through Travel Portal.

Cons

• High 29.99% APR.

• Annual fee of $39.

• No account opening bonus.

11. Chase Freedom Rise®

The Chase Freedom Rise® is perfect for those who want a starter credit card they can use to build credit over time.

Key Features

Last on our list is the Chase Freedom Rise®. With no annual fee, users will receive an account opening bonus of $25 upon approval. However, this rewards credit card only offers 1.5% cash back on all eligible purchases (no bonus categories available).

Furthermore, balance transfers are charged $5 or 5% of the total transfer, depending on which one is greater. You'll also need to pay foreign transaction fees, which are 3.5% of the total transfer.

Pros

• No annual fee.

• Account opening bonus of $25.

• Great for building credit.

Cons

• Lower cash rewards on purchases.

• Foreign transaction fees are an added cost.

• 5% fee for future balance transfers.

• Higher interest rate.

Prepaid and Secured Credit Card for Credit Building

Now that you have a better idea about the best credit cards for beginners let's go over what it means to have a secured credit card vs. an unsecured credit card. A secured credit card is a type of credit card that requires users to make a security deposit that is usually the same amount as their credit limit. This security deposit then serves as collateral if you are unable to make your credit payments. On the other hand, traditional credit cards don't require collateral.

One thing to note is that while secured credit cards don't offer rewards, they can be a great way to build credit over time. Your on-time payments are sent to the major credit bureaus in Canada each month. Over time, and with each payment, you'll slowly begin to increase your credit score, making it a great option for those who are starting their credit journey.

It's also recommended for those who are trying to take better control of their spending habits. Because collateral is required, secured credit cards are almost always guaranteed to be approved, which is why it's a great option for those with no credit history.

KOHO Prepaid Mastercard

Similar to a secured credit card, the KOHO Prepaid Mastercard offers a $10 monthly upgrade that offers credit-building features. With this feature, you're essentially provided a credit line that allows you to spend money throughout the month up to your credit limit. At the end of each monthly billing period, your on-time payments will then be sent to the credit bureaus, helping you establish a positive history that will benefit you in the long term.

Why KOHO Stands Out

What makes the KOHO Prepaid Mastercard stand out is that while there is no annual fee, users still get 1% cash back for everyday purchases at grocery stores and transportation. There's also an option to upgrade your credit line further.

For example, for an added $9 a month, credit line users can increase their cash back to 2% on groceries, transportation, food and drinks and 0.5% back on all other everyday purchases. And, if you ever choose to close your account and it's in good standing, you'll get a refundable security deposit, which is the amount of collateral you submitted when you opened your account.

What is a foreign transaction fee?

A foreign transaction fee is a fee credit card holders must pay if they make a payment with their card at a store that originates outside of Canada. For example, if you purchase something overseas during an online sale or on vacation, a foreign transaction fee will be charged to your account. Foreign transaction fees will vary between 1% - 5% of the total charge on your card. However, some credit card issuers have zero foreign transaction fees for customers.

What are the three major credit bureaus in Canada?

Credit bureaus, also known as credit reporting agencies, are companies that collect the credit card information of all Canadians before compiling this information into what is known as a credit report. There are three credit bureaus in Canada. However, the two that deal with personal credit card information are Equifax and TransUnion. The third credit bureau is Dun & Bradstreet, which deals with collecting business credit information.

What information is sent to credit bureaus?

Persona credit bureaus in Canada collect numerous pieces of information, including the following:

• Your legal name.

• Date of birth.

• Social security number.

• Driver's license number.

• Current address.

• Passport number.

• All past and current employers.

• Any credit card, personal loan, or credit line applied for through your bank or credit union.

• Your credit payment history.

• Bad cheques.

• Any recorded collections or bankruptcies filed.

Tips for Using Beginner Credit Cards Wisely

While using credit cards is a great way to build credit, without proper plans for spending and saving, it's easy to get carried away with your purchases, which can snowball you into a cycle of debt. This, of course, is the last thing you want to do if you want to have a healthy credit score and your inability to pay off your debts isn't sent to major credit bureaus. Here are some tips and tricks first-time credit card users can use to ensure they use their credit cards wisely:

Understand the terms and conditions of your credit card

One of the most important steps you need to take when getting a credit card is to ensure you fully understand the terms and conditions outlined in your contract. Within this contract, you'll find information about annual fees, your billing period, credit limit, interest rates, and more.

Avoid reaching your credit limit each month

With a credit card and other types of personal loans comes a debt-to-income ratio. This ratio measures how much debt you have each monthly billing period compared to your monthly salary. Financial experts state that this ratio should be at 30% or under, which means that realistically, the balance you have on your credit card would only be about 30% of your salary each month and should be put toward paying off your credit card balance. Ultimately, having a debt-to-income ratio higher than 30% indicates to major credit bureaus that you're living outside of your means and unable to borrow money responsibly.

To avoid this, use your credit card for essential purchases at grocery stores, car insurance, or other monthly bills you would be buying regardless. This can help you avoid unnecessary spending and learn responsible spending habits.

Make timely payments each billing period

One of the most definitive factors that influences your credit score is your payment history. Late payments will not only look like a red flag on your credit history but can also lead to late fees and high interest rates on your credit balance. To prevent late payments, we recommend setting up automatic payments through your bank account. If you're unable to do so, setting a monthly timer on your phone is also helpful.

Try to pay off more than your minimum payment each month

Some months, you'll likely be spending more than others. However, despite your card balance, try and pay off more than your minimum payment. Making your minimum payment each monthly billing period will keep your credit account in good standing, meaning it will show that you made a payment on your credit history because you aren't paying off the entire card. The balance will transfer to your next billing period, and you'll be charged interest on this balance.

Read your monthly statement carefully

Another good credit card habit to learn is checking your monthly statement and reviewing the purchases. By doing so, you can look for potential fraud, double payments, and other purchases that don't seem correct. Beyond this, you can also set up notifications on your banking app to notify you each time you use your credit card to make a purchase, so you can keep up with this easier throughout the month.

Cash in on credit card rewards

Don't forget to make the most of your credit card rewards! Depending on the credit card you have, you could redeem rewards for travel purchases, car rental bookings, eligible delivery service, and more! So, when reviewing the best credit cards for beginners, make sure you choose a credit card that reflects your goals and interests!

What is the easiest credit card to get?

If you're looking for the easiest credit card to get in Canada, your best option out there is a prepaid credit card. The basic idea behind prepaid credit cards is that you load money onto them beforehand and then use them just like any other credit card. By doing so, you can enjoy the ease of using a card without having to worry about accumulating debt since you aren't actually borrowing money.

Unlike a traditional credit card, there isn't an application process, which means those with no credit history or those with scores that aren't as favourable can get one with ease. So, which ones should you consider?

Here are some of our favourites:

• KOHO Prepaid Mastercard: KOHO's prepaid Mastercard offers the convenience of a cash reward credit card without any interest. With this card, you'll also get to download our app, which can help you stay on track with your spending habits. A bonus is that there's no credit check upon approval.

• Canada Post Prepaid Reloadable Visa: Next, we have the Canada Post Prepaid Visa. As the name suggests, you can reload this card whenever you need to make purchases. Ultimately, these are easy to get and readily available at any Canada Post Office.

• Vanilla Prepaid Mastercard: Lastly, we have the Vanilla Prepaid Mastercard. You'll pretty much find these in the checkout aisle at every grocery store where they display gift cards. Again, there's no credit card check, and you won't need to provide your personal information to purchase these.

Can you get an instant approval credit card with bad credit?

Now, let's say you have a pretty established credit history, but unfortunately, your credit score is just not cutting it. What does this mean? In Canada, credit scores range from 300 to 900, with an average credit score amongst Canadians being around 680. Generally speaking, anything above this number is considered good, while anything below 560 is considered poor.

If your credit score happens to be under 560, the good news is that there are credit cards for people with bad credit. Instant approval credit cards are offered by a majority of credit card providers when you apply for a card online. Within minutes, you'll be able to determine whether or not you qualify for a new credit card. Just keep in mind that because you will still need to go through a credit check, there is a chance that you'll be denied a card.

If you're unsure what your current credit score is, get a free credit score check and build your credit with KOHO!

What is a virtual credit card?

As we've mentioned, there are numerous credit cards available, including virtual credit cards. So, what is a virtual credit card, and how do they work? Unlike a physical credit or debit card, a virtual credit card is one that can be used online to shop and pay for your streaming services or other subscriptions you may have. These offer a quick and safe way to pay for online purchases without disclosing your actual card details.

How a virtual credit card works is similar to a standard credit card. However, rather than having a physical copy, your card number, expiry date, and CVV will be available through your banking app.

What should newcomers to Canada look for in a credit card?

If you're a newcomer to Canada, your accumulated credit history from your home country is, unfortunately, not transferrable. Therefore, when you settle in Canada, opening a new credit card is highly recommended. In reality, credit cards for newcomers in Canada are plentiful, and there are a couple of things you'll need to look out for to ensure you choose one that provides you with the most benefits.

Cash-back rewards are some of the most common credit cards available. With a rewards credit card, you'll receive a percent back on the everyday purchases you make. With cash rewards, you can then use the money for other purchases. In other words, you'll make money as you spend money. Another thing to keep an eye out for is shopping discounts. Some credit cards in Canada offer discounted rates with certain merchants, which means you can save money when shopping at specific stores.

At the same time, remember to watch out for interest rates and potential fees. When shopping around for a credit card, compare rates and benefits, as it will help you in the long run.

How is credit card interest calculated?

As we've stated, all credit cards come with a preset interest rate, which represents how much it costs you to borrow money. Your interest rate will be expressed as a percentage. So, how is credit card interest calculated? Here's a step-by-step to follow:

1. Determine the Daily Periodic Rate (DPR)

You first need to determine what is known as the Daily Periodic Rate (DPR). You can do this by dividing your credit card's annual percentage rate (APR) by 365. This number will give you the daily period rate, which is the daily interest rate you pay.

2. Calculate the Average Daily Balance (ADB)

Next, you need to calculate your average daily balance (ADB). To do so, add up all of the outstanding balances on your credit card for each day in your billing cycle. Then, you'll need to divide the total of all your outstanding balances by the number of days in your billing period.

3. Multiply the ADB by the DPR

Now, multiply the daily period rate by the average daily balance to get your daily interest charge.

4. Calculate your total interest charge

Finally, with your daily interest charge, you can divide this number by the total number of days in your credit card billing cycle to get the total interest charge for said cycle.

Now, let's give you an example of this using actual numbers:

Say your credit card interest rate is 19% (APR).

To calculate your DPR, we'll take this 19% / 365 days a year = 0.052% (DPR).

Now, your credit card’s daily unpaid balance over 30 days totals $15,000. We then take this $15,000 / 30 days in your billing period = $500 (ADB).

Then, take $500 (ADB) x 0.052% (DPR) = $0.26, which is the amount of interest generated on your card each day.

Finally, take $0.26 x 30 days = $7.80, which is charged on your $500 daily balance per day in your billing period.

Can you transfer money from a credit card into a bank account?

If you're short on cash in your bank account, transferring money from a credit card is possible. However, you should only opt to do so if it's an absolute emergency, given that your interest rate on the borrowed money will be quite high. If possible, you may be better off borrowing money from your savings account rather than getting a cash advance from your credit card.

Now, in a scenario where you have no other option, a credit card cash advance is a good way to get money deposited into your account quickly. Moving forward, you'll want to make sure that you pay back the money as quickly as possible to avoid high interest.

Does transferring money from my credit card to my bank account hurt my credit score?

Yes, one thing to note is that getting a cash advance from your credit card is something that couldn't hurt your credit score. This is due to the fact that obtaining a cash advance involves using up the credit you have available. So, the more available credit you use, the higher your credit utilization ratio is, which influences your credit score, which, again, should remain around 30% or lower at all times to ensure your credit score remains in good standing with major credit bureaus.

How do I choose a credit card for the first time?

As you've seen, there are numerous credit cards for beginners out there. So, how do you choose which ones are best for you? While the process may seem daunting at first, by following these steps, you can make an informed decision and feel confident in your credit card choice. Here's what you need to do:

1. Consider your current income

First things first, you need to take a look at what your current monthly income is and what your spending habits are. Depending on the credit card you're looking at, some may have a minimum household income to be approved.

For those who have a credit history but are unsure what their current credit score is, you may want to check your credit score beforehand, as it can give you a better idea about which credit cards you can and shouldn't apply for.

2. Decide what benefits you want

Next, you'll want to consider what benefits you want. Remember, credit cards have annual fees in return for rewards. The goal here is to ensure that the annual fees are worth the return. Here's what to think about:

Rewards cards

Most commonly, credit cards will have cash-back rewards, meaning every time you spend money, you'll get between 1%-3% in cash back. Ask yourself, at the end of the year, do you want a cash-back cheque to spend on whatever you want?

Low-interest cards

If you're not really into getting rewards for your everyday purchases, you may want to consider a credit card with a low interest rate. While most credit cards have high interest rates, you can find some with ones that are lower, which would help you out if you anticipate not being able to pay off your entire monthly credit card balance.

Extended warranty

A credit card with an extended warranty can also come in handy, especially if you like to travel. If the warranty is an option, look out for travel insurance, mobile device insurance, car rental coverage, purchase protection, trip cancellation coverage, lost baggage, and more.

3. Compare credit cards

Beyond considering credit cards for rewards, interest rates, extended warranties, and other perks, you'll also want to compare credit cards based on the following:

Other fees

Certain card activities can lead to additional fees. For example, you will usually be assessed a foreign transaction fee if you make an online or in-store purchase from a store that is not located in Canada. There are also fees for late payments, going over your credit limit, and more. Make sure you fully understand what fees are attached to the credit cards you're looking at, as there could be hidden fees that aren't disclosed to you upfront.

Help with building credit

Because you'll be new to credit cards, spending wisely is essential. If you know you have spending habits that aren't necessarily healthy, you may want to consider a secured credit card. As we mentioned, a secured credit card requires the user to put down a cash deposit that serves as your credit limit. If you default on your payment, your credit card company can seize the money to pay off the amount owed.

A secured credit card has the advantage of ensuring that each time you pay your credit balance in full and on time, credit bureaus in Canada will be notified. And, over time, you'll be able to increase your credit score.

How do credit card companies make money?

At the end of the day, a credit card company is a business that needs to make money. So how exactly do they do this? There's actually a couple of ways. Here's a closer look:

High interest rates

The first, of course, is by charging you interest on the money you borrow. In Canada, the annual percentage rate will range between 19.99% and 29.99%.

Merchant fees

The next is through merchant fees. If you own a business in Canada that accepts certain credit cards, you may charge your customers an additional fee to accept their card.

Other fees

Whether it be an annual fee, balance transfer fee, foreign transaction fees, spending over your credit limit, non-payment fees, and other hidden fees that may not be disclosed to you by certain companies.

How to apply for your beginner credit card

Once you've considered your income and the benefits you want to cash in on and compared credit card companies, you can now begin to apply for your starter credit card by doing the following:

1. Gather your documents

First things first, you'll need to gather your application documents. Here's what you'll need when applying for a credit card:

Personal information

To apply for a credit card in Canada, you'll need to be a Canadian resident and the legal age of majority in the province or territory you live in, which is typically 18 years old.

Employment and income information

Next, you'll need to provide information about your employment and income level. Typically, you'll need to fill out information like your employer's name, address, and your yearly salary. You may also be required to inform them of your household's income level.

Personal debt

Lastly, you may be asked whether you have any current debt like a student loan, car loan, or other personal loan during the application process.

2. Fill out your credit card application

Once you've collected the required information, you can either apply for your starter credit card online or in person, depending on your preference and the type of credit card you're applying for.

3. Get approved for your new credit card

After you've submitted your application, two things will occur during the approval process:

Credit check

The first is a credit check. Because this is your first credit card, you won't need to worry about what your credit report says, given that you don't have a credit history. If this isn't your first credit card, the card company will request your credit history from one of the major credit bureaus and review your payment history and other sections of the report.

Income verification

The second thing your credit card company will consider is your income. They'll usually do this by reviewing your paystub or record of employment to ensure that you are, in fact, working.

4. Get your new credit card in the mail

Congrats! You've just been approved for your first credit card! Once the approval has gone through, you'll get your new card in the mail. This can take about a week or two. If you've applied for a virtual credit card, you'll get your card instantaneously.

5. Activate your new card

Finally, once you've received your new credit card in the mail, you'll need to activate it. To do so, you'll need to provide the credit card number, expiration date, and CVV and give your credit card company a call. Most of the time, you'll get your PIN in a separate letter in the mail.

Do I need a bank account to get a credit card in Canada?

No, you don't need a bank account to apply for a credit card in Canada. Additionally, if you have a bank account, there's no law that says you can't apply for a credit card at a different financial institution. While there may be certain perks to applying for a credit card from your current financial institution, you do have the freedom to shop around and look for better options elsewhere if you wish!

How many credit cards can I have?

Realistically, you can have as many credit cards as you like. On average, Canadians tend to have between two and three each. That said, you should only have as many credit cards as you can handle responsibly and pay off each month. Remember, the more debts you have, the higher your debt-to-income ratio, which will impact your credit score.

Why is building credit important?

Opening a credit card and building credit over time is important for several reasons. Here's a closer look:

• Can help you purchase a home: Buying a home and paying a mortgage is one of the biggest investments Canadians make in their lifetime. Without a good credit history and credit score, your chances of being approved for a mortgage are slim.

• Can help with obtaining lower interest rates: If you need to apply for different loans in the future, whether it be a line of credit, student loans, car loan, or more, a good credit score and history can also help you secure a lower interest rate and have more room for bargaining.

• Get approved for your dream apartment: If home ownership is not something you're interested in, a good credit score can also help beat out other renters who are interested in your dream apartment. That's right--when applying for a rental unit, your new landlord will run a credit check on you before you're approved to make sure you're trustworthy enough to pay your monthly rent.

• Dream car: Is your dream car out of reach? With a good credit score, you can apply for a larger credit loan to fund your new vehicle purchase.

What happens to my credit score if I miss a monthly payment?

Missing a monthly payment on your credit card can impact your credit score. However, most credit card companies won't report your missed payment to a credit bureau unless it's over a month later. So, if you notice that you missed your billing period by a couple of days, still make an effort to pay off your bill entirely. If you can't cover the entire cost, at least make the minimum payment, that way your payment can be recorded and scent to the bureau.

As a reminder, consider setting up automatic payments through your banking app. If this feature isn't offered, you can always set up a calendar reminder on your phone.

How to get maximum rewards from your credit card

If you're applying for rewards credit cards, you might as well take advantage of the opportunity to ensure you experience maximum rewards from day one. Here's what you need to do:

• Understand your credit card rules: The best way to ensure you get maximum rewards from your credit card is to learn the rules around how you can earn rewards in the first place. Know which types of purchases earn the most cash-back rewards and points.

• Keep your eyes peeled for promotions: Don't forget to keep an eye out for promotions and deals. Some rewards programs have limited-time deals where you can double or triple your cash rewards. If you can plan your grocery and drugstore purchases around this time, you can earn big.

• Redeem rewards with the best value: Some rewards aren't as good as others. If you're going to redeem points, make sure they're going to ones that offer the most value for as few points as possible.

Do any credit cards offer unlimited cashback match?

With an unlimited cashback match credit card, the points you've collected on your credit line throughout the year will qualify for a dollar-for-dollar match by your credit card company. To experience unlimited cashback match you'll need to apply for a Discover credit card. The Discover Cashback Match™ program is great for maximum rewards while building credit. However, to be approved for this type of card, you'll need a higher credit score.

So, while this type of unlimited cashback match credit card may not be the best option for someone who's just begun their credit journey, once you've established a good credit history, applying for a higher credit line with a Discover credit card is a great option.

What is a balance transfer credit card, and how can I benefit from one?

A balance transfer credit card is a type of card that allows you to take the balance you currently have on one credit card and transfer the balance to another. The idea behind balance transfers is that you can transfer your outstanding credit card balance to another credit card you have with a lower interest rate.

Ultimately, by doing so, you can pay off your debt more quickly and at a lower rate. We should note that most balance transfer credit cards have a balance transfer fee, which typically ranges from 3%–5% and is charged on your total credit card debt amount.

Are there alternatives to credit cards?

While credit cards are helpful in building a credit history and managing money, there are other methods you can use that are as convenient and safe:

Debit cards

With a debit card, you're essentially withdrawing your own money from your chequeing account. Because you're not borrowing this money from a third-party, you won't be charged interest on what you spend. With a debit card, you'll be able to make purchases online and in person.

It's important to note that because you're not borrowing money, using your debit card for purchases will not help build your credit in any way.

Personal loans

If credit cards aren't your thing, a personal loan may be better suited. A personal loan are typically used to fund large purchases such as renovations, business start ups, school tuition, a new car, and more. You can apply for a personal loan through your bank, credit union, or other lenders. Once approved, a lump sum payment will be deposited into your bank account.

Once the money is transferred, you'll make a monthly payment toward your loan balance until the entirety of your loan is paid off with interest. While you won't be able to use a personal loan like a credit card, because you've borrowed money and actively worked to pay it back, you will be able to use it as a means to improve your credit score and build a credit history.

Line of credit

A line of credit is similar to a credit card. Unlike a traditional loan, where the full lump sum payment is deposited into your account, a line of credit allows you to spend money on your credit line up to your credit limit. And, like a credit card, you will only pay interest on the money you spend. Realistically, you can spend money each month, like a credit card, and continue to pay it back as many times as you want.

With each timely payment, your information will be sent to the credit bureau, indicating that your account is in good standing. Similar to personal loans, you can get a higher credit line and pay for things like school tuition, a new car, renovations, and more depending on your financial needs.

Streamline your finances with KOHO

At KOHO, we help Canadians take control of their finances with thoughtful financial products that you'll actually benefit from. Whether you're looking for a KOHO Mastercard with overdraft protection coverage to fund your everyday purchases and build credit or a high-interest savings account that can help you make money while saving for the future, KOHO has something for everyone.

Open an account today and get started on achieving those financial goals you've been dreaming of!