Is It Time to Say Goodbye to Your Starter Credit Card?

A young woman sits on the couch holding a credit card.

Nearly nine out of 10 Canadians have a credit card, according to Payments Canada. Not only that, but Canadians are also heavy credit card users, coming in second to South Korea in credit card volume per capita.

The study found that the extraordinary credit card use is fuelled by key factors such as credit card rewards and the expansion of e-commerce in the country.

But where does it all start? According to a global report by TransUnion, 63% of Gen Z consumers, over 18 in Canada, are credit-active. Of that population, nearly all have a credit card.

Yet, the study also suggests new-to-credit consumers often have lower credit limits, which can lead to higher utilization rates and, in turn, negatively impact consumers’ credit scores.

However, the report found that a significant number of Gen Z consumers are in the prime and above credit tiers, generally associated with an acceptable risk level for new credit products.

Further findings indicate that in established credit markets, such as Canada, Gen Z consumers “are clearly interested in — and receiving — cards.” As more of this segment of Canadians graduate college and join the workforce, they may also be eligible for higher tier credit products and more significant credit limits.

What is a starter credit card?

Starter credit cards are great for those with limited to no credit history, including newcomers to Canada and students. Consumers are typically offered a starter card from their bank once they reach the age of majority, or from on-campus promotions during post-secondary school tours. These cards generally have no annual fees, no income requirements and low credit limits but can help build the cardholder’s credit score and credit history.

Below are some examples of the main categories of typical starter credit cards.

Student credit cards

Some student credit cards have four-year eligibility periods. During that time, student credit cards can help new credit users get their foot in the door and start building their credit rating for future financial products. After that timeframe, if you are still attending school, you will have to update your enrollment status to continue to qualify for the card. If not, your account may be reclassified (typically the same card without the student terms and conditions), or your lender may offer you an upgrade.

For example, students may be eligible for the BMO®* CashBack Mastercard®* for Students if they are a recognized post-secondary student, and earn an income from employment, scholarship, student loan, or family allowance. After graduation, once you are no longer eligible for a student card, the BMO®* CashBack Mastercard®* may be the next logical choice as it offers similar features and still no fee!

Before accepting the first offer you receive, take this as an opportunity to shop for a new credit card. But more on that later.

Your standard bank credit card

In this modern age of technology, many people choose to bank online. Sometimes, your bank will even send you emails with promotions, including credit card deals. Since the bank already knows your personal information and the details of your finances, these offers may start to show up in your inbox as soon as you are eligible. They may also appear at the top of the banking app or as a banner in your online banking portal.

A popular choice is the TD Cash Back Visa* Card because it has no fee, no income requirements, a standard interest rate, in addition to decent rewards and basic features like purchase security and extended warranty.

Unlike student credit cards, these offers typically won’t have restricted four-year eligibility periods. However, after a specific timeframe, your bank may start to offer you a larger credit limit or an upgrade to a better credit card.

One of the benefits of getting a starter credit card is that you can start to build your credit history, which can help you get approved for more lucrative cards down the road. Generally, when you update your salary or spend within a certain threshold on the card, it signals the bank that you may qualify for another credit card. Also, you will usually see these promotions if you manage your credit card responsibly.

Credit cards with instant approvals

Some credit cards will let you know if you have been approved right after you apply. Sometimes these cards have fees; yet, many focus on consumers with no credit history. However, you will likely have to provide proof of employment during the process.

Some store credit cards will let you use the account the day you apply and are approved. They may even encourage you to shop within the store with a promotion. To use the account before receiving the card, the store will typically provide you with some sort of slip. For example, the Walmart Mastercard® offers cardholders a bonus if they use the card within five days of opening the account.

Often, these cards are competitive with other instant approval cards. However, they may lack the benefits and rewards from cards with stricter eligibility requirements.

Starter credit cards are an excellent way for consumers to become credit-active. But there comes a time in every cardholder’s financial journey where it is time to say “thank you and sayonara” to your starter credit card and trade it in for something more rewarding.

How long does it take to build a credit history?

Although it only takes about three to six months to start building a credit history, the longer your credit account stays open, in good standing, and in use, the better it can be for your credit score. Lenders will have different reporting schedules; therefore, it can take some time for your credit score to update. The amount of information the credit bureaus receive can help lenders determine your creditworthiness and risk level. That means ditching your starter credit card after a few months likely won’t help your eligibility for a higher tier card.

How does your starter credit card affect your credit score?

Your starter credit card will affect your credit score in two primary ways.

Credit history

Opening a credit account will help build your credit history and credit score. Although you can be credit-active without a credit card, it may be harder to qualify for those other products (such as a car loan), or you may receive less than ideal interest rates.

Credit utilization

Starter credit cards typically have lower credit limits, which can impact your credit utilization ratio. Experts recommend you use less than 30% of your available credit. That means, if you have a starter credit card with a $500 credit limit, you would ideally spend less than $150 on the account at any given time. Someone who has bills to pay could find staying within that small utilization ratio challenging.

Why should you upgrade?

Once you qualify for a higher limit, you may choose to increase it (within reason), to work with your spending habits. Or, you may opt for a more beneficial and rewarding credit card.

When you have an idea of your monthly expenses and how you plan to use your credit card, you will have a better awareness of what you need. With each milestone you achieve, you may want to relook at your credit cards and, once again, how you are spending money.

These life changes can be in employment or income, such as a promotion, or if you start travelling more. You may require a higher credit limit or sway toward another type of credit card reward or perk.

What should you look for in a new credit card?

It can help to compare credit cards to see what each issuer is offering. There are several great rewards cards, and many hit on the same categories, such as travel or cash back.

Looking at the finer details will help you determine if you qualify for the card you are applying for and if it will truly reward you for your spending.

Minimum salary requirements

Many credit cards have salary requirements. Some are quite low, while others are more exclusive. Luckily, if you share the account, you may qualify for higher tier cards with your shared household income.

For example, the President’s Choice Financial® Mastercard® is the first in a three-card series. Eligibility for this core card is “Subject to credit approval.” Usually, this means that there isn’t a specific minimum income threshold. Whereas, the highest tier card, the President’s Choice Financial® World Elite Mastercard®, requires applicants to have a minimum annual personal income of at least $80,000 or a household income of $150,000. While it requires a higher income level, the World Elite card comes with several benefits ranging from a higher reward rate so that you can earn PC Optimum points faster, to incremental insurance and services.

Credit score

It may not matter what your income is if you have a poor credit score. Depending on the credit card, you may require a good or excellent credit score to be eligible.

For example, you may be eligible for the basic no-fee BMO® AIR MILES®† Mastercard®* if you have a good credit score. On the other hand, for cards like the higher tier BMO® AIR MILES®† World Elite®* Mastercard®*, you are often more likely to be approved if you have an excellent credit rating.


Rewards credit cards usually fall into a category like cash back, travel, specialty rewards or flexible redemption options. It would only make sense to choose the one that appeals to you the most. If you are uncertain of how to spend your rewards, a flexible redemption program can suit all types.

Credit cards that feature American Express Membership Rewards® or Scotia Rewards have an array of redemption options, from statement credits, travel rewards, merchandise, gift cards, and more.

Perks and benefits

Many credit cards feature insurance or extra perks like lounge access or priority boarding at the airport. Often, cards that come with top features have an annual fee, but there are several no-fee cards with plenty of benefits.

For example, The Platinum Card® from American Express is known for being very prestigious and offering top insurance coverages, experiences and travel credits. However, it comes at an annual cost of $699. More modest options that have a wide range of insurance coverages and exclusive travel perks may have fees around $120 to $150.

Welcome offer

New cardmembers may benefit from a promotional bonus when they apply for an account. Typically, cardholders have to meet a requirement, such as make their first purchase or spend $2,000 before a specific number of statement periods. If the cardholder does so, they may receive extra cash back or points.

For example, the TD® Aeroplan® Visa Infinite* Card is offering new cardmembers 15,000 bonus Aeroplan Miles when they make their first purchase using the card. This welcome offer is equal to an economy short-haul flight reward. Conditions apply. Must apply by September 8, 2020. This offer is not available for residents of Quebec. For Quebec residents, please click here.

Some cards, however, give back all year long. Cardholders of the American Express CobaltTM Credit Card can earn up to 30,000 extra Membership Rewards® in the first year. For each month you spend at least $500, you can earn 2,500 Membership Rewards® during the first 12 months. The American Express CobaltTM Credit Card has a monthly fee of $10; however, supplementary cards have no annual fee. This card has an annual interest rate of 19.99% on purchases and 21.99% on funds advances.

This post was not sponsored by American Express. The views and opinions expressed in this review are purely my own. The product information was accurate as of the date of this posting, July 27, 2020.   

Interest rate

If you want to take advantage of a low-interest rate, some credit cards offer well below the standard rate of 19.99%. A low-interest credit card like the True Line® Mastercard® credit card gives cardholders a 12.99% interest rate on purchases and balance transfers.

Annual fee

Lastly, you will want to consider the annual fee. If the benefit outweighs the cost, then it may be worthwhile to find a card with a yearly fee. According to our Best of Finance Methodology, a cardholder must spend at least $12,000 a year on a card with a $100 annual fee, to benefit. However, we estimate that the average Canadian spends roughly $1,600 a month or $19,200 a year, well within that threshold.

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Credit Cards

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