Credit glossary

Plain-English definitions of the credit terms you’ll run into in Canada.

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Amortization: How a loan is paid down over time through regular payments that cover both interest and principal.
Annual percentage rate (APR): The yearly interest rate charged on a balance. Canadian credit cards commonly charge around 20% to 23% on purchases, with low-rate cards closer to 13%.

Balance transfer: Moving a balance from one card to another, usually to take advantage of a lower promotional rate. A transfer fee often applies.
Bankruptcy: A legal process, filed through a Licensed Insolvency Trustee, that eliminates most unsecured debts in exchange for giving up some assets and following set duties. It has a major, long-lasting impact on credit.

Cash advance: Borrowing cash against your credit card. Interest usually starts immediately, often at a higher rate, and fees may apply.
Collections: When an unpaid debt is passed to a collection agency. Collections appear on your credit report and hurt your score.
Consumer proposal: A legally binding offer to repay creditors part of what you owe, filed through a Licensed Insolvency Trustee.
Credit bureau: A company that collects and reports credit information. Canada’s two national bureaus are Equifax and TransUnion.
Credit limit: The maximum amount you can borrow on a credit card or line of credit.
Credit report: Your record of credit accounts, balances, payment history, inquiries and certain public records.
Credit score: A three-digit number from 300 to 900 that estimates how likely you are to repay debt.
Credit utilization: The share of your available revolving credit you’re using. Lower is better; under 30% is a common guideline.

Debt management program: A repayment plan arranged by a non-profit credit counsellor, often with reduced interest, combining debts into one monthly payment.

Grace period: The interest-free time between your statement date and payment due date on new purchases, at least 21 days at federally regulated institutions.

Hard inquiry: A credit check made when you apply for credit. It can lower your score slightly and stays on your Equifax report for three years.
HELOC: A home equity line of credit: a revolving credit line secured by the equity in your home.

Licensed Insolvency Trustee (LIT): A federally regulated professional who administers consumer proposals and bankruptcies in Canada.

Minimum payment: The smallest amount you must pay on your card each month to keep the account in good standing.

Secured credit card: A card backed by a deposit you provide, useful for building or rebuilding credit.
Soft inquiry: A credit check that doesn’t affect your score, such as checking your own credit or a pre-approval check.
Statement balance: What you owed on the day your billing cycle closed. Paying it in full by the due date avoids interest on purchases.