A credit card can be one of the most useful tools you own, or one of the most expensive. The difference is almost entirely one habit. This lesson covers how cards work, what they really cost, and how to use one to build good credit.
How a credit card works
A credit card lets you borrow up to a limit, then pay it back. Each month you get a statement showing what you spent, the minimum payment, and the due date.
If you pay the full balance by the due date, Canadian rules give you an interest-free grace period of at least 21 days on new purchases. Used that way, you're borrowing for free.
If you pay less than the full balance, interest starts. Most cards charge around 20% to 30% a year. In Ontario you need to be 18 to get a card in your own name.
What "just the minimum" costs
Say you have a $1,000 balance at 20.99%, on a card whose minimum is 3% of the balance, and you stop using it. These are estimates.
| Monthly payment | Time to pay off | Total interest |
|---|---|---|
| 3% minimum (starts at $30, then shrinks) | about 11 years | about $1,070 |
| A steady $50 | about 2 years | about $240 |
| A steady $100 | about 1 year | about $110 |
Paying only the minimum, you'd pay back more in interest than you borrowed. The minimum shrinks as the balance shrinks, so it takes a very long time to reach zero. Keeping the payment the same, even a small amount, makes a big difference.
Try it
The minimum payment versus a steady one
$1,000 at 20.99%, no new spending. The amber line pays the 3% minimum, which shrinks as the balance does. The teal line keeps paying the same amount every month.
3% minimum
11 yr 3 mo
$1,066 interest
Steady $50
2 yr 1 mo
$241 interest
- 3% minimum
- Steady $50 a month
Building your credit
When you're older, lenders will look at your credit history to decide whether to lend to you and at what rate, for a car loan, an apartment or a mortgage. A credit card is often how that history starts.
Two habits matter most. Pay on time, every time: even a single missed payment can be reported. And keep the balance low compared with the limit, so a $500 limit with $100 on it looks better than one with $480 on it.
A common myth is that you need to carry a balance and pay interest to build credit. You don't. Paying the full statement balance each month builds credit just as well, for free.
If you can't get a regular card, a secured card asks for a deposit, often the same as your limit, and reports to the credit bureaus like any other card. Many banks also offer student cards with low limits and no annual fee.
Fees to watch for
Beyond interest, look out for annual fees, cash advances (taking cash out with a card, which charges interest from day one and often a fee), and foreign transaction fees, often about 2.5%, when you buy something in another currency, including from some websites.
Where to go next
Credit cards are just one way to borrow. The next lesson compares the others, from student loans to buy now, pay later, to payday loans.
Worked figures are estimates based on the example inputs shown, checked October 11, 2026. Rates, rules and lender policies change, and your own numbers will differ. This is educational information, not financial advice.