Credit cards are more than just a convenient payment method, they can be powerful financial tools that can help you build your financial future and offer rewards like points or cash back. However, without a clear understanding of how credit cards work, they may also lead to unexpected financial challenges. 

In this guide, we’ll break down exactly how credit cards work, how to use them responsibly and share tips to help improve your credit score and financial future. Let’s get started!

What is a Credit Card?

A credit card lets you pay for goods and services in stores, online, by mail, or over the phone up to a preset limit. Unlike a debit card, which pulls money directly from your bank account, a credit card lets you make purchases on credit—meaning you’re borrowing money. You then pay back the amount you’ve spent, in full or in installments, before your balance is due. 

Think of it as a short-term loan that you can use repeatedly, as long as you pay off what you owe. By understanding how credit cards work, you can avoid common pitfalls and take full advantage of their benefits—whether that’s building your credit or earning rewards.

Understanding Credit Limits

Now that you understand what a credit card is, let’s explore how credit card limits work. When you’re approved for a credit card, the issuer assigns you a credit limit. This is the maximum amount you can borrow on your credit card. Your limit is based on factors like your income, credit history, and credit score. 

For example, if your credit limit is $3,000, you can make purchases up to that amount. To continue using your credit card as a payment method, you will need to pay down the balance to create some room for future expenses.  A good rule of thumb is to use no more than 30% of your available credit. Paying down your balance regularly not only frees up credit but also helps maintain a healthy credit score.

How Credit Card Payments Work

Each month, your credit card issuer will either mail you a statement or make it available online. Your statement will show you the following: 

  • Your transaction history: A detailed list of purchases, including the amounts, and dates. 
  • Your total balance: This is the total amount you owe at the end of the statement period. 
  • Your minimum payment: The smallest amount of money you must pay by the due date. 
  • Your due date: The deadline to make your payment to avoid late fees and a negative impact on your credit score. 

To keep a healthy credit score, you can either pay the full balance, which is always the best option or make at least the minimum payment. Just remember, carrying a balance means you’ll be charged interest and can indirectly impact your credit score by increasing your credit utilization ratio. 

To make a payment on your Mainstreet Credit Card, you can log into your online banking or your CardWise Account. To avoid missing payments, you can set up autopay or create an alert for when your payment is due. 

If you are struggling to meet your payments, book an appointment with one of our advisors—we’re here to get you back on track.

Credit Card Interest & APR Explained

When you apply for a credit card, you might notice the interest rate or the Annual Percentage Rate (APR) listed. APRs can vary between cards and the applicants. Most credit cards issue a standard APR, but your rate might depend on factors like your credit score. Generally, a lower credit score can result in a higher interest rate. 

Beyond individual qualifications, different types of APRs apply depending on how the credit card is used. For example, regular purchases, balance transfers, and cash advances often have different rates. Check out all our offers to see if there are any that you can take advantage of! 

If you’re looking to secure a lower credit rate, you can take steps to improve your credit score, pay off outstanding debt, or actively find a credit card with a low interest rate. If you need help finding the card that’s right for you, you can try our interactive card selector to see what card might be the best option for you. 

Note: Most credit cards offer a grace period (usually 21 days), during which you can pay off your balance without incurring interest. The best way to avoid paying extra? Always pay your balance in full before the due date. 

Mainstreet Credit Union offers different personal credit cards with a range of interest rates to fit your needs.

Common Credit Card Fees

Every credit card has unique fees based on the type of card. Some fees can catch you off guard if you’re not fully informed. It is important to understand all the fees before you get a credit card. Here are some common fees to know about: 

  • Annual fees: Some cards charge a yearly fee for premium benefits. 
  • Late payment fees: If you miss your due date, you could be charged a penalty. 
  • Cash advance fees: Withdrawing cash from an ATM with your credit card often comes with higher interest rates. When selecting your credit card, look for the “cash withdrawals” specific interest rate if you plan to use your credit card to withdraw cash. 
  • Foreign transaction fees: Some cards charge a higher transaction fee for transactions outside of Canada. 

Choosing the right credit card (and reading the fine print) can help you avoid any unnecessary fees.

How to Build Your Credit Score with your Credit Card

Using a credit card wisely can increase your credit score, which helps when you’re applying for loans, mortgages, or even renting an apartment. Here’s how: 

  • Making your payments on time boosts your payment history, which is the biggest factor in your credit score. Pro tip: you can set up autopay, so you know you’ll always pay your credit card on time! 
  • Keeping your balance owing low compared to your credit limit improves your credit utilization ratio. This is the percentage that you are using of the total credit available to you and it pays a large role in how your credit score is calculated. 
  • Establishing a long history of responsible credit use demonstrates to lenders that you’re financially reliable. This is why it is important to start building credit as soon as you are old enough. 
  • Monitor Your Credit: Regularly check your credit score to track your progress and identify any discrepancies early. 

Increasing your credit score won’t happen overnight, but by consistently following the steps listed above you can gradually increase it over time. If you’d like to discuss other ways to improve your credit score, you can reach out to a Mainstreet Advisor online or in branch.

Different Types of Credit Cards 

Mainstreet Credit Union offers a range of personal and business credit cards with features like low interest rates1 or annual fees, travel perks, or cash back2. Depending on the card, you may receive perks such as purchase protection3, mobile device insurance3, and fraud protection3.  

If you’re a frequent traveler, the World Elite® Mastercard might be right for you. It offers reward points4 that can be redeemed on flights or hotels**, perks like travel insurance5 and baggage coverage5, and 24/7 travel assistance5. 

Choosing a card that matches your lifestyle can help you get the most out of your spending. If you’re interested in earning points, use our points calculator tool to understand how many points you could earn in annually4. 

Ready to take the next step? Whether you’re thinking about getting a new credit card, want to upgrade, or simply want to ensure you’re using yours effectively, you can book an appointment with a Mainstreet advisor, apply online, or visit one of our branches to start the process.  

Remember: Understanding how credit cards work can empower you to make smart financial decisions and set yourself up for success!

*Terms & conditions 

**For full details on the Flex Rewards program, visit Home | Flex Rewards. 

1 The interest rates are in effect from the date the credit card is approved. For more information, please reference your cardholder agreement or visit online www.collabriacreditcards.ca/cardholder-agreement. 

2 The base value of one reward point is equal to one cent (a penny per point). The cash equivalent shown for illustration purposes only is based upon the redemption of these points as a statement credit. The valuation is for cash equivalent only; the value of redeeming for merchandise and travel may vary. 

3 Insurance coverage is underwritten by American Bankers Insurance Company of Florida (ABIC). ABIC, its subsidiaries, and affiliates carry on business in Canada under the name of Assurant®. ®Assurant is a registered trademark of Assurant, Inc. Details of insurance coverage, including definitions, benefits, limitations and exclusions, are in the Certificate of Insurance. The Certificate of Insurance is available online at collabriacreditcards.ca/insurance. Insurance coverage is subject to change. 

4 Reward points are earned on net purchases only. Any Cash-like Transactions including Cash Advances, Balance Transfers, and interest charges, fees, payments, credit or debit adjustments and any amount other than Purchases that may be charged to your Account with your Card or Convenience Cheques, do not qualify for Points. For more information visit collabriacreditcards.ca/rewards 

5 Insurance coverage is underwritten by Desjardins Financial Security Life Assurance Company. Details of insurance coverage, including number of days of coverage, definitions, benefits, limitations and exclusions are in the Travel Insurance Contract. Please visit collabriacreditcards.ca/insurance for complete details. Insurance coverage is subject to change