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

July 30, 2021
11 mins
A young woman sits on a couch and shops using her phone and a credit card

According to a global report by TransUnion from 2020, 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 significant numbers 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 thin credit profiles (limited or no credit history), including newcomers to Canada and students. People 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 usually 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 starter credit card categories.

Student credit cards

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

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

But before accepting the first offer you receive, take an opportunity to compare credit cards. There are many options, and one may suit your spending habits better, offering you more savings.

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Standard bank credit cards

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 RBC® Cash Back Mastercard because it has no fee, no income requirements, a standard interest rate, decent rewards and basic features like purchase protection and extended warranty.

Unlike student credit cards, these offers won’t expire when you reach a certain age or graduate. However, after a specific period, 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 begin to build your credit history, which can help you get approved for more lucrative cards down the road. When you update your salary, spend within a certain threshold, or manage your account responsibly, it signals the bank that you may qualify for a higher tier card.

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, providing you with a slip in lieu of a physical card. For example, the Walmart Mastercard® offers cardholders a bonus if they use the card within the first day of opening the account.

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

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.

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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 won’t help your eligibility for a higher tier card.

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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 and credit utilization.

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 other products, such as a car loan. You may also 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 will ideally spend less than $150 on the account at any given time. Someone who has bills to pay could find staying within a small utilization ratio challenging.

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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 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 other types of rewards or perks.

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What should you look for in a new credit card?

There are several great rewards cards, and many fit within the same categories, like 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 reward you for your spending.

Minimum salary requirements

Many credit cards have salary requirements. Some are quite low, while others are more exclusive. Luckily, you may qualify for top-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 to insurance coverage.

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 more likely to be approved if you have an excellent credit rating.


Rewards credit cards usually fall into categories 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 unsure how you would like to spend your rewards, a flexible redemption program can suit all types.

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

Perks and benefits

Many credit cards feature insurance or extra perks like lounge access or priority boarding at the airport. Often, cards 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 comprehensive insurance coverage, exclusive experiences, and airport benefits. However, it comes at an annual cost of $699. More modest options with travel insurance and perks may have fees around $120 to $150.

Welcome offer

New cardholders may benefit from a promotional bonus when they apply for an account. Typically, cardholders must meet a requirement, such as making their first purchase or spending $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 offers new customers up to 20,000 Aeroplan points and a bonus Buddy Pass. Earn 10,000 points after making your first purchases. Earn an additional 10,000 points and a bonus Buddy Pass when you spend at least $1,000 in the first 90 days (about three months). Must apply by August 16, 2021. This offer is not available for residents of Quebec. For Quebec residents, please click here.

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® 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, it may be worthwhile to find a card with a fee rather than one without.

Related read: Are Credit Cards with Annual Fees Worth It?

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 $2,000 a month or $24,000 a year, well within that threshold.

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Rates, product information and reward estimates are subject to change at any time and do not constitute financial advice. This post was not sponsored. RATESDOTCA may receive a referral fee from our partners or affiliate links featured on the site; however, our editorial choices are objective and free from bias. The opinions expressed in this article are purely those of RATESDOTCA; thus, the credit card issuers and partners are not responsible for any editorials or reviews that may appear. Please visit the associated website for complete and current terms and conditions on any product or service mentioned. The information in this article is accurate as of the date of this posting, July 30, 2021. Read our full disclaimer.

Hayley Osmond

Hayley Osmond is an editor and writer in the personal finance space, where she uses her eight years of media and marketing experience to bring content to life. She specializes in money products, including mortgages, home and auto insurance, and credit cards. Hayley holds a Broadcast Journalism diploma from Sheridan College and was awarded the Shaw Media Journalism and Media Award for graduating at the top of her class. Her work has appeared in Global News and diverse digital corporate training materials behind the scenes.

Hayley is passionate about making complex subjects, such as home buying and financial literacy, concise and intriguing. Her work has garnered media coverage from The Globe and Mail, blogTO, Yahoo! News, and CityNews 680 and has been syndicated across other publications.

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