How to Choose the Best Credit Card in Canada: A Comprehensive Guide

How to Choose the Best Credit Card in Canada: Credit cards are a popular payment method in Canada, but it’s important to understand the basics before choosing one. Here are some key points to keep in mind:

How Credit Cards Work

A credit card allows you to borrow money from a lender, usually a bank, to make purchases. You are then required to repay the money you borrowed, plus interest, over time. The amount of interest you pay depends on the interest rate on your card and how much you owe.

Types of Credit Cards

Several types of credit cards are available in Canada, each with its features and benefits. Some common types include:

  • Rewards cards: These cards offer rewards, such as cashback or points, for making purchases.
  • Low-interest cards: These cards have a lower interest rate than others, making them a good choice if you carry a balance.
  • Balance transfer cards: These cards allow you to transfer a balance from another card to take advantage of a lower interest rate.
  • Secured cards: These cards require a security deposit and are a good option if you have poor credit or no credit history.

Credit Card Fees

Credit cards often come with fees, so it’s important to understand what you’ll be charged. Some common fees include:

  • Annual fees: Some cards charge an annual fee for using the card.
  • Interest charges: If you carry a balance on your card, you’ll be charged interest on the amount you owe.
  • Late payment fees: If you don’t pay on time, you’ll be charged a late fee.
  • Balance transfer fees: You may be charged a fee if you transfer a balance from another card.

Credit Score

Your credit score is important in determining whether you’ll be approved for a credit card and what interest rate you’ll be charged. According to Equifax, a good credit score is generally between 660 and 900. If your credit score is lower, you may still be able to get a card, but you may be charged a higher interest rate or have a lower credit limit.

Understanding these basics can help you choose the best credit card.

Assessing Your Financial Habits

Before choosing a credit card, assessing your financial habits is important. This will help you determine which type of credit card is best suited for you. Here are some factors to consider:

Spending Habits

Consider how much you spend each month and where you spend it. If you spend a lot on groceries or gas, you may want to consider a credit card that offers cash back or rewards for those purchases. A travel rewards credit card may be a better fit if you travel frequently.

Payment Habits

Be honest with yourself about your payment habits. Do you always pay your balance in full monthly, or do you carry a balance? You may want to consider a credit card with a low-interest rate if you carry a balance. If you always pay your balance in full, you may want to focus on rewards programs instead.

Credit Score

Your credit score will play a big role in which credit cards you are eligible for. You can access a wider range of credit cards with better rewards and perks if you have excellent credit. If your credit score is lower, you may need to focus on credit cards with lower interest rates or those designed for people with less-than-perfect credit.

Annual Fees

Some credit cards come with annual fees, while others do not. Consider whether the rewards and perks a credit card offers outweigh the annual fee. If you don’t think you’ll use the rewards and perks enough to justify the fee, choosing a credit card with no annual fee may be better.

By assessing your financial habits, you can narrow your options and choose a credit card that best fits your needs.

Identifying Your Needs

Before choosing a credit card in Canada, it’s important to identify your needs. Consider the following factors:

Credit Score and Income

Different credit cards have different credit scores and income requirements. According to Equifax, a credit score between 660 and 900 is considered good to excellent. If your credit score is lower, you still have options, but you may need to apply for a secured credit card or a credit card with a higher interest rate. Check the credit score and income requirements for each card before applying.

Spending Habits

Consider your spending habits when choosing a credit card. Do you frequently travel? Do you spend a lot of money on groceries or gas? Look for cards that offer rewards or cash back for the purchases you make most often. Some credit cards also offer bonus rewards for signing up or reaching certain spending thresholds.

Fees and Interest Rates

Credit cards often come with annual fees and interest rates. Look for cards with low fees and interest rates if you plan to carry a balance. Some cards also offer introductory rates or waived fees for the first year. Read the fine print and understand the terms and conditions before applying.

Other Perks and Benefits

In addition to rewards and cash back, some credit cards offer other perks and benefits, such as travel insurance, extended warranty coverage, and purchase protection. Consider these perks when choosing a credit card, but weigh them against fees or interest rates.

Credit Card Types

When choosing a credit card in Canada, it’s important to understand the different types available. Each type of credit card has its features and benefits, and choosing the right one can help you save money and make the most of your spending. Here are the most common types of credit cards in Canada:

Rewards Credit Cards

Rewards credit cards are popular for Canadians who want to earn points, miles, or cash back on their everyday purchases. These cards typically offer a sign-up bonus and ongoing rewards for spending in certain categories, such as groceries, gas, or travel. When choosing a rewards credit card, it’s important to consider the earning rate, redemption options, and any annual fees or other costs associated with the card.

Low-Interest Credit Cards

Low-interest credit cards are designed for Canadians who want to carry a balance on their credit card without incurring high-interest charges. These cards typically have a lower interest rate than other credit cards but may not offer as many rewards or other benefits. When choosing a low-interest credit card, it’s important to consider the interest rate, any annual fees or other costs associated with the card, and whether the card offers a grace period for new purchases.

Secured Credit Cards

Secured credit cards are a good option for Canadians with a poor credit history or no credit history. These cards require a security deposit, collateral for the credit limit. Secured credit cards typically have a lower credit limit than others but can help you build or improve your credit score over time. When choosing a secured credit card, it’s important to consider the interest rate, any annual fees or other costs associated with the card, and whether the card reports to the credit bureaus.

Student Credit Cards

Student credit cards are designed for Canadian students who want to build credit while they’re in school. These cards typically have lower credit limits and fewer rewards than other credit cards but can help students establish a credit history and learn responsible credit habits. When choosing a student credit card, it’s important to consider the interest rate, any annual fees or other associated costs, and whether the card offers any special perks or benefits for students.

Business Credit Cards

Business credit cards are designed for Canadian business owners who want to separate their personal and business expenses and earn rewards for their business spending. These cards typically offer rewards for spending in certain categories, such as office supplies, travel, or advertising, as well as other benefits, such as expense tracking and employee cards. When choosing a business credit card, it’s important to consider the rewards program, any annual fees or other costs associated with the card, and whether the card offers any special perks or benefits for business owners.

How to Choose the Best Credit Card in Canada

Interest Rates and Fees

When choosing a credit card, it’s important to consider the interest rates and fees associated with the card. Here are some factors to keep in mind:

Interest Rates

Credit card interest rates in Canada can vary widely, ranging from around 8% to over 20%. The interest rate you’ll be charged depends on several factors, including your credit history, the type of card you’re applying for, and the issuer’s policies.

It’s important to understand that credit card interest rates are typically higher than other loans or credit products, such as personal loans or lines of credit. This is because credit cards are unsecured debt, meaning there is no collateral to back up the loan.

Fees

In addition to interest rates, credit cards often come with various fees. Here are some common fees to look out for:

  • Annual fees: Some credit cards charge an annual fee for using the card. Depending on the card’s benefits, these fees can range from $0 to several hundred dollars per year.
  • Balance transfer fees: If you’re transferring a balance from one credit card to another, you may be charged a fee for the transaction. This fee is typically a percentage of the transferred amount and can add up quickly.
  • Cash advance fees: If you use your credit card to withdraw cash from an ATM, you’ll likely be charged a cash advance fee. This fee is typically a percentage of the amount being withdrawn and is often accompanied by a higher interest rate than regular purchases.
  • Foreign transaction fees: If you use your credit card to purchase in a foreign currency, you may be charged a foreign transaction fee. This fee is typically a percentage of the purchase and can add up quickly if you travel abroad.

When comparing credit cards, be sure to consider all of these fees, as they can significantly impact the overall cost of using the card.

Credit Card Rewards and Benefits

When choosing a credit card, rewards and benefits can be a major factor in your decision-making process. Here are the main types of credit card rewards and benefits available in Canada:

Cash Back Rewards

Cashback credit cards offer a percentage of your purchases back in cash. The amount of cashback you can earn varies depending on the card and the spending category. Some cards offer a flat rate on all purchases, while others offer higher cashback rates on specific categories such as groceries, gas, or restaurants.

Before choosing a cashback credit card, consider your spending habits and the categories you spend the most. Also, check for any restrictions or limitations on the cashback rewards, such as a cap on the amount you can earn or expiration dates.

Travel Rewards

Travel rewards credit cards offer points or miles that can be redeemed for travel-related expenses such as flights, hotels, and rental cars. Some travel rewards cards offer flexible redemption options, while others are tied to specific airlines or hotel chains.

Before choosing a travel rewards credit card, consider your travel preferences and loyalty to specific airlines or hotel chains. Also, check for any restrictions or blackout dates on redeeming your rewards.

Also Read: Can I Overpay My Credit Card

Retail Rewards

Retail rewards credit cards offer points or discounts for purchases made at specific retailers. These cards are often co-branded with a particular store or retail chain. Some retail rewards cards offer additional benefits such as free shipping, early access to sales, or extended return policies.

Before choosing a retail rewards credit card, consider how often you shop at the retailer and if the rewards and benefits offered are worth any annual fees or restrictions on where you can use the card.

It’s important to choose a credit card with rewards and benefits that align with your spending habits and financial goals. Read the terms and conditions carefully and compare multiple cards before deciding.

Credit Card Limit

When choosing a credit card, it’s important to consider the credit card limit. The credit card limit is the maximum amount of money you can spend using your credit card. This limit is determined by the credit card issuer and is based on several factors, including your credit score, income, and credit history.

Credit card limits can range from as low as $500 to more than $50,000. Student credit cards or cards for those without a long credit history typically have lower credit limits, while high-income earners may be eligible for credit cards with higher limits.

It’s important to note that just because you have a high credit limit doesn’t mean you should max out your credit card. Keeping your credit utilization ratio (the amount of credit you’re using compared to your credit limit) below 30% is recommended to maintain a good credit score.

When choosing a credit card, consider your spending habits and choose a credit card with a credit limit that will accommodate your needs without encouraging overspending.

Below is a table of credit cards with their respective credit limits, as reported by Forbes and NerdWallet for July 2023:

Credit Card Credit Limit
Scotiabank Platinum American Express card $10,000+
Scotia Momentum Visa Infinite card $10,000+
BMO CashBack Mastercard for Students $1,000 – $5,000
MBNA True Line Mastercard $5,000 – $15,000
TD Cash Back Visa Infinite Card $5,000 – $50,000

Remember that credit card limits are subject to change and may vary based on individual circumstances. It’s always best to check with the credit card issuer directly to confirm the credit limit for a specific credit card.

Reading the Fine Print

When choosing a credit card, it’s important to read the fine print to understand the terms and conditions of the card. Here are some key things to look for:

Annual Fees

Some credit cards charge an annual fee for using the card. This fee can range from $0 to several hundred dollars per year. Ensure you understand the fee and whether it’s worth it for the card’s benefits.

Interest Rates

Credit cards charge interest on any unpaid balances. Ensure you understand the interest rate and whether it’s fixed or variable. A fixed rate will not change, while a variable rate can change over time.

Rewards Programs

Many credit cards offer rewards programs that allow you to earn points or cash back for using the card. Ensure you understand the rewards program and how to earn and redeem points.

Balance Transfer Fees

Understand the balance transfer fee if you’re considering transferring a balance from one credit card to another. This fee can range from 1% to 5% of the transferred amount.

Foreign Transaction Fees

If you plan to use your credit card while traveling outside Canada, ensure you understand the foreign transaction fees. These fees can range from 2% to 3% of the purchase amount.

Expiration DatesUnderstand the expiration dates if your credit card offers rewards points or cash back. Some rewards expire after a certain period, so use them before they expire.

Reading the fine print of a credit card can be overwhelming, but it’s important to understand the terms and conditions before you apply. If you have any questions, please get in touch with the credit card issuer for clarification.

Comparing Credit Cards

When choosing a credit card, comparing the features, fees, and rewards different cards offer is important. Here are some factors to consider:

Interest Rates

Credit cards charge interest on balances not paid in full each month. The interest rate, or the Annual Percentage Rate (APR), can vary depending on the card and the cardholder’s credit score. Some credit cards offer a low introductory interest rate for a limited time, while others have a higher ongoing interest rate. It’s important to compare the interest rates of different cards to find the one that best fits your needs.

Rewards and Benefits

Many credit cards offer rewards programs, such as cashback, points, or miles, for purchases made with the card. Some cards also offer additional benefits like travel insurance, extended warranties, or concierge services. It’s important to compare the rewards and benefits different cards offer to find the one that best fits your spending habits and lifestyle.

Fees

Credit cards may charge annual fees, balance transfer fees, cash advance fees, foreign transaction fees, and other fees. It’s important to compare the fees charged by different cards to find the lowest fees that best fit your needs.

Credit Score Requirements

Some credit cards have strict credit score requirements, while others are available to people with lower credit scores. It’s important to check the credit score requirements of different cards to find the one that best fits your credit profile.

Specialized Credit Cards

Specialized credit cards are also available, such as student credit cards, business credit cards, and secured credit cards. These cards may have different features, rewards, and fees than standard credit cards. It’s important to compare the specialized credit cards available to find the one that best fits your needs.

By comparing the features, fees, and rewards of different credit cards, you can choose the one that best fits your needs and helps you achieve your financial goals.

Applying for a Credit Card

When applying for a credit card in Canada, remember a few things. First, you must ensure that you meet the eligibility requirements the credit card issuer sets. Typically, you must be the age of majority in your province or territory, be a Canadian citizen or resident, and have a good credit score.

To increase your chances of getting approved for a credit card, it’s important to have a good credit score. According to Equifax, a credit score between 660 and 900 is considered good to excellent. If your credit score is lower than that, you may still be able to get approved for a credit card, but you may have fewer options available to you.

When choosing a credit card, it’s important to consider the card requirements. Different cards carry different credit scores and income requirements. For example, some cards may require a minimum income of $30,000 per year, while others may require a minimum income of $60,000 per year.

To apply for a credit card, you must typically provide personal information such as your name, address, and social insurance number. You may also need to provide information about your employment and income.

It’s important to read the terms and conditions of the credit card carefully before applying. This will help you understand the fees, interest rates, and other important details associated with the card. If you have any questions, please get in touch with the credit card issuer for clarification.

Overall, applying for a credit card in Canada can be straightforward as long as you meet the eligibility requirements and choose a card that fits your needs. By researching and carefully considering your options, you can find a credit card that helps you build credit and achieve your financial goals.

Frequently Asked Questions

What are the best cashback credit cards available in Canada?

There are several cashback credit cards available in Canada. The best options include the Tangerine Money-Back Credit Card, the SimplyCash Preferred Card from American Express, and the Scotia Momentum Visa Infinite Card. These cards offer high cashback rewards on various categories, such as groceries, gas, and recurring bills.

Which rewards credit card is the best for Canadians?

The best rewards credit card for Canadians depends on their spending habits and lifestyle. Some popular options include the American Express Cobalt Card, the TD Aeroplan Visa Infinite Card, and the BMO World Elite Mastercard. These cards offer rewards in travel points, cash back, and other perks.

What factors should I consider when choosing an online credit card?

When choosing an online credit card, it is important to consider the interest rate, annual fees, rewards program, and any additional benefits such as travel insurance or purchase protection. It is also important to ensure the card is accepted by the online merchants you frequently use.

What is the best combination of credit cards for Canadians?

The best combination of credit cards for Canadians depends on their spending habits and financial goals. A popular combination is to have a cashback credit card for everyday purchases and a travel rewards credit card for travel expenses. It is important to consider the fees and rewards each card offers to ensure that they complement each other.

Which BMO credit cards are the most popular in Canada?

Some of Canada’s most popular BMO credit cards include the BMO World Elite Mastercard, the BMO CashBack World Elite Mastercard, and the BMO AIR MILES World Elite Mastercard. These cards offer various rewards such as travel points, cash back, and AIR MILES rewards.

What are the best credit cards for families in Canada?

The best credit cards for families in Canada offer rewards on everyday purchases such as groceries, gas, and recurring bills. Some popular options include the PC Financial World Elite Mastercard, the Scotia Momentum Visa Infinite Card, and the TD Cash Back Visa Infinite Card. These cards offer high cashback rewards on family-friendly categories and additional benefits such as travel insurance and purchase protection.

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