How do credit cards work?

Credit cards are a convenient way to pay for purchases, whether you’re shopping online, in store or over the phone.

You can also use a credit card to withdraw cash or transfer a balance. These types of transactions include:

• Balance transfers: Using a credit card to pay a balance on another credit card. This could save you money if you’re moving your balance to a card with a much lower interest rate. You’re charged interest once the balance transfer is posted to your account. Some issuers may require a minimum transfer amount to be eligible for a promotional balance transfer offer and there's typically a balance transfer fee. Learn more about CIBC balance transfers.
• Cash advances: Withdrawing cash using your credit card. This usually requires you to pay a fee, and you’re charged interest as soon as you get the money.
• Convenience cheques: Cheques that are linked to your credit card. You can use them to pay off another card or to make purchases at places that don’t accept credit cards. You're charged interest once the cheque is posted to your account.

When you make a purchase, the credit card issuer processes the transaction and pays the merchant on your behalf.

It takes a few days for the transaction to show up on your credit card account. This is called a pending transaction. Once it’s posted, the transaction amount is added to your balance and your available credit goes down by the amount you spent.

Your monthly credit card statement lists all the posted transactions for that billing cycle. For purchases appearing on your statement that haven’t been converted to an installment plan, you have an interest-free grace period that’s at least 21 days, starting from the end of the billing cycle. After this, you’ll start accruing interest, which is added to your total card balance. Be aware that there’s no interest-free period for balance transfers, cash advances or convenience cheques.

To keep your account in good standing, you need to make the minimum payment by the due date every month. However, paying only the minimum amount results in interest being charged. Your card’s specific interest rate is provided when you apply and can be found in the Summary of Rates and Fees document that comes with your card agreement. To avoid interest on purchases, pay the entire statement balance by the payment due date every month.

Payments made to your credit card are applied as set out in the CIBC Cardholder Agreement (PDF, 115 KB) Opens a new window.. Refer to this document for complete details.

If you want to prevent late payments, use some common tools like setting up scheduled payments or creating alerts to remind you when your payment is due.

If you’re struggling to pay off your credit card debt, create a plan to get yourself back on track. You might create a budget, add an overlimit block, consolidate your debt or switch to a card with a low interest rate.

If you don’t pay your full balance by the payment due date for each month’s statement, you'll be charged interest retroactively for each purchase from the transaction date. If you performed a cash advance, balance transfer or used a convenience cheque, you'll be charged interest from the day the transaction is posted to your credit card account. Most cards have different interest rates for different types of transactions, such as purchases and cash advances.

We calculate your credit card interest using your average daily balance. Here’s how we do this for Personal Cards:

• Add the balances for each day together and divide it by the number of days in your statement period. This is your average daily balance.
• Divide the annual interest rate by the number of days in the year to get your daily interest rate.
• Multiply your average daily balance by the daily interest rate and multiply this total by the number of days in your statement period.

If you have balances on your account at different annual interest rates, such as purchases, cash advances, balance transfers or installment plans, we’ll calculate interest using the average daily balance and daily interest rate for each balance. Interest is added to your account at the end of each statement period. We don’t charge interest on interest.

For example, let’s say you have an average daily balance of $500 with an annual interest rate for Purchases of 20%. Your daily interest rate would be 20% divided by 365, giving you about 0.0548%. To find how much interest you owe each day, multiply 0.0548% by $500, which gives you $0.274. To get your total interest charges for the month, multiply your $0.274 by the number of days in your statement period, let’s say 30 days. This gives you $8.22.

Once you’ve looked through your options and picked a card that fits your needs, it’s time to apply. Credit card issuers may have different requirements to apply and options for how you can apply.

For CIBC, here are some basic requirements you’ll need to meet when applying:

• You must be a Canadian citizen or resident. If you have temporary residence status, your application may take longer to review.
• You must be the age of majority: 18 or 19, depending on the province you live in.
• You have a good credit score.
• You haven’t filed for bankruptcy in the past 7 years.
• You meet the minimum annual income requirement.

You can apply for a credit card in one of 3 ways:

• Online: Once you’ve found the credit card you like, select the “Apply Now” button to start the application process.
• Over the phone: Call one of our customer care representatives at 1-866-525-8622 Opens your phone app..
• In person: Visit a CIBC Banking Centre near you Opens a new window.

The credit card issuer will look at the information you’ve provided, along with information received from the credit reporting agencies. This is known as a “hard” credit check.

Once they’ve completed their evaluation, the issuer will let you know if you’re approved. If you're approved, you’ll receive your card in the mail shortly after, along with your card agreement and disclosures.

Learn more about how to get a credit card