Choosing a credit card
A credit card allows you to borrow a pre-approved amount of money. It may help you pay for goods and services. When using a credit card, you must pay your minimum payment by the due date. If you don’t pay your balance in full, your credit card issuer usually charges an interest fee. Credit card issuers offer a variety of cards.
The key differences are:
- the interest rates
- the fees
- the rewards and benefits
Comparing credit card interest rates
A credit card’s interest rate may be an important factor if you regularly carry a balance. A balance is the amount of money you owe on your credit card. The higher the interest rate, the more interest you'll pay on an outstanding balance. A lower interest rate card may save you money over time.
Different interest rates may apply to different types of transactions. These transactions include purchases, cash advances or balance transfers.
The interest rate may not be an important factor in choosing a credit card if you:
- pay your balance in full every month
- don’t take out cash advances
- don’t make cash-like transactions
There are many credit cards with low interest rates available. Some low-rate cards charge an annual fee. Even if there is a fee, a low-rate card may be a better option.
Example: Compare low interest rate cards and standard cards
Suppose you regularly carry a balance on your credit card. You want to pay off your balance of $4,000 in one year.
Your current credit card has:
- an interest rate of 21%
- no annual fee
You’re considering a low interest rate card with
- an interest rate of 9%
- a $50 annual fee
| Type of credit card | Balance owing |
Interest rate |
Annual fee |
Interest paid |
Total cost to pay off balance (including annual fee) |
|---|---|---|---|---|---|
| Current standard card | $4,000 | 21% | $0 | $472 | $4,472 |
| Low interest rate card | $4,000 | 9% | $50 | $199 | $4,249 |
In this example, you'll pay $273 less in interest with the low interest rate card. This is even with the $50 annual fee. Keep in mind that this example assumes you don't use your credit card while you pay down your balance.
Credit card introductory offers with low interest rates
Some credit card issuers offer cards with low interest rates for a limited time. Generally, the low interest rate will apply for a limited time, usually 6 to 12 months. The rate will increase once the introductory period ends. Consider the following after the introductory period ends:
- if you can afford a higher interest rate
- if the card still suits your needs
In some cases, the introductory rate ends as soon as you go over your credit limit or make a late payment.
Federally regulated credit card issuers must give you the following key details about introductory rates:
- the date at which the low interest rate ends
- the types of transactions the introductory rate covers
- the other fees or conditions that apply
- the standard interest rate you’ll pay after the low interest rate period ends
Before you sign up for an introductory low-rate or interest-free credit card, read the application and credit agreement carefully.
Comparing credit card rewards and benefits
Credit cards may offer rewards and benefits. When you use your card to make purchases, you may earn cash back or discounts on products and services. You may have to pay a fee for this type of card.
Before you choose a credit card for its rewards program or benefits, consider the following:
- the impact of carrying a monthly balance
- the interests you’ll pay
- the frequency at which you expect to use the card’s benefits
These factors may reduce the value of the card’s rewards or benefits.
You should also keep in mind the additional fees that may apply at checkout. A merchant may choose to impose a surcharge fee (except in Quebec). You may end up paying up to 2.4% more for each purchase. The percentage may vary from one merchant to another depending on the card you used for the purchase.
Learn more about merchant surcharges.
Compare the rewards and benefits offered by different cards.
Think about:
- how likely you are to use each benefit
- how long it will take you to earn rewards
- if you already have access to the benefit some other way
- if there are any restrictions or limitations
Read the terms and conditions of the credit card application and agreement carefully. Ask questions about anything you don't understand.
Examples: Estimating the value of rewards and benefits
Before you get a credit card with rewards and benefits, make sure it’s worth it. You may estimate the potential value of the rewards you may earn in a year and then subtract the annual fee.
The following examples illustrate how to determine a card’s reward’s program benefit.
In the examples, the assumptions are that you:
- pay your balance in full each month
- don’t use your card for cash advances or cash-like transactions
Example 1: Grocery rewards
Suppose you have a credit card with the following conditions:
- a $25 annual fee
- 10 points for every dollar you spend at the grocery store
- $10 off your grocery bill for every 10,000 points you earn
| Steps to calculate the benefit | Example |
|---|---|
| Step 1: Multiply the amount you spend by the number of points earned per dollar | $4,000 × 10 points = 40,000 points |
| Step 2: Divide the number of points earned by the reward | 40,000 points / 10,000 points = $40 |
| Step 3: Subtract the annual fee to get the benefit | $40 - $25 = $15 |
In this example, you save $15 with the credit card’s reward program.
Example 2: Cash back rewards
Suppose you have a credit card with the following conditions:
- a $85 annual fee
- 1% cash back on purchases
| Steps to calculate the benefit | Example |
|---|---|
| Step 1: Multiply the amount you spend by the cash back | $4,800 × 1% = $48 |
| Step 2: Subtract the annual fee to get the benefit | $48 - $85 = -$37 |
Because the $85 annual fee is higher than the $48 reward benefit you receive, this credit card isn’t worth it.
Comparing credit card fees
When you use a credit card, you may have to pay fees for services. These fees include taking out a cash advance or using your card in foreign countries. Different credit cards have different fees.
Read the terms and conditions of the credit card application and agreement carefully. Ask questions about anything you don't understand.
Annual fees
Financial institutions may charge an annual fee for some of their credit cards. Usually, the charge will appear on your credit card statement once a year. Cards with an annual fee usually offer extra rewards and benefits or a lower interest rate.
You may have to pay an additional annual fee if you request a card for an additional cardholder. The fee for the second card is typically lower than it is for the first card.
Keep in mind that you may choose a credit card with no annual fee. Some no-fee credit cards offer similar rewards and benefits to cards that do have an annual fee.
Before you apply for a credit card with an annual fee, consider how you'll use the card. Think about whether the rewards and benefits are worth the annual fee. Also consider if there is a similar card available that doesn’t have an annual fee.
Other fees
You may also have to pay fees such as:
- foreign currency charges
- over-the-limit fees
- reprinting charges for statements or receipts from previous transactions
- dishonoured payment fees
- inactive account fees
- insurance fees, also known as premiums for credit card balance insurance
- merchant surcharges (except in Quebec). It’s additional fees added at checkout for using a credit card as a method of payment
Get electronic alerts from your financial institution
Your financial institution may send you an electronic alert when the credit available on your credit card falls below a certain amount.
This alert may help you manage your day-to-day finances and avoid fees.
Learn more about electronic alerts.
Specialized credit cards
Depending on your credit history and spending habits, a specialized credit card may suit your needs.
Student credit cards
Some credit cards are made for students. These cards often have lower credit limits than standard credit cards. They may have benefits tailored to students, such as discounts at certain retailers.
Low interest rate student credit cards are also available. Contact your credit card issuer to find out if you’re eligible for a student credit card.
U.S. dollar credit cards
A U.S. dollar credit card may work for you if you often purchase goods or services in U.S. dollars. With this type of credit card, you may avoid having to pay foreign currency conversion rates.
Retail credit cards
A retail credit card is a credit card that lets you earn rewards, such as discounts, at a specific retailer. Retailers often offer buy now, pay later plans with extended interest-free periods. They may also offer discounts or reward programs with in-store credit cards. Keep in mind that these offerings often apply only to purchases made at the store that issued the card.
If you shop at one store enough, you may benefit from its rewards programs. Be sure to consider the potential benefits against any interest or fees you may pay.
For example, if you don’t pay the balance in full before the interest-free period ends, you'll have to pay interest from the date of purchase. Since the interest rate for retail cards is usually high, even the items you bought at a discount may end up costing you more than the regular price.
Secured credit cards
A secured credit card may be an option if you don’t have a credit history or if you have bad credit.
You must provide a security deposit to get a secured credit card. You give the security deposit to the financial institution that issues the credit card.
Financial institutions normally set your credit limit at an amount that is equal to or higher than your deposit. The security deposit may range from a few hundred to a few thousand dollars.
If you don't make your payments, the financial institution may use your deposit to pay the money you owe.
You may want to consider a secured credit card if you:
- are a newcomer to Canada and have no credit history
- have filed for bankruptcy in the past
- want to rebuild your credit score after past credit problems
Learn how to improve your credit score.
Be careful when applying for a secured card from an unknown financial institution. Be particularly careful of secured card offers from issuers outside Canada. If you have problems with the company’s services, it may be more difficult to resolve them.
Secured cards without a recognized brand name such as VISA, Mastercard or American Express may have limited uses. Only a small number of stores accept them.
Getting a secured credit card
To get a secured credit card, you may have to pay a one-time application or set-up fee. This fee isn't part of your security deposit. You may not get it back if the financial institution declines your application. Your card may have an annual fee.
Check with your financial institution to make sure they insured your deposit. Your financial institution usually holds your security deposit. It may also arrange with another financial institution to hold the deposit.
Cancelling your secured credit card
To cancel a secured credit card, you need to pay off the entire balance. You'll get your security deposit back when you close your account.
Applying for a credit card
To apply for a credit card, you must be of legal age in your province. Before you complete a credit card application, make sure you understand all the terms and conditions that apply to the card.
If you apply for a credit card from a federally regulated financial institution such as a bank, the application must include an information box. The information box must present key features of the credit card. Interest rates, fees and other charges must be presented in a clear and easy-to-understand way.
Learn more about your rights when getting a credit card.
Optional credit card balance insurance
When you apply for a credit card, financial institutions may also offer you credit card balance insurance. It is optional insurance that’s a separate product from your credit card. You don’t need to buy credit card balance insurance to be approved for a credit card.
Balance insurance may help you make credit card payments if you:
- lose your job
- become injured or disabled
- become critically ill
Balance insurance has important limits on the coverage it provides. Read your certificate of insurance carefully and ask questions if you don’t understand what it covers.
Learn more about credit card balance insurance.
Check your credit report before applying for a credit card
Check your credit report with Canada’s 2 main credit bureaus, TransUnion and Equifax.
Learn how to get your credit report.
If your credit report contains an error, take action to correct it immediately. Errors in your credit report may be the reason you couldn’t get an unsecured credit card.
Learn how to check for errors on your credit report.
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