Like many Canadians, you’re probably bombarded regularly with credit card offers from banks and retailers. With an overwhelming number of options to choose from, you might end up applying for a credit card simply because it’s issued by your home bank, the welcome rate looks appealing, or because it promises bonus points.
However, shopping around for the right credit card can save you hundreds (or even thousands) of dollars in interest charges and additional fees while racking up rewards and benefits. To make your decision easier, here are five steps for choosing the best credit card:
How to choose a credit card:
1. Check your credit score
A credit score is a three-digit statistical representation of your creditworthiness, and knowing it will give you an idea of what kind of credit card offers you might be eligible for. Credit scores range on a scale from 300 to 900—the higher your number, the greater your chance of being approved for cards with higher limits and better perks. The lower it is, the riskier you are in the eyes of lenders.
If your score is lower than you thought, check your credit report to see what’s bringing you down—it could be an error, or you might have to work on improving your spending and repayment habits. Generally speaking, a score of 660+ is good. However, every lender has different lending requirements, so it’s always in your best interest to have a higher score.
2. Choose the type of credit card
There are several different types of credit cards out there, but the “best” credit card is the one designed to meet your specific needs. If you’re a frequent traveller, or an aspiring one, look into a travel rewards credit card. Value hunters who want to earn back a percentage of their everyday spending and save on fees may appreciate cash back or no fee credit cards. If there’s a chance you’ll be carrying a balance month to month, consider low interest credit cards. If you need help paying off debt from a big purchase, see if you can switch to a balance transfer credit card.
If you have no credit, or are looking to repair damaged credit, you should look at secured credit cards. For post-secondary students, student credit cards offer low or no fee options for credit newbies.
When deciding on the type of credit card, sit down and ask yourself: How do I spend my money? Will this card help build my credit? Can I graduate to a better card in the future? How quickly will I earn rewards, and what are they worth?
3. Choose a provider
You might automatically gravitate toward a credit card offered by the same bank where you have a chequing and savings account, but you don’t have to be guided by loyalty. Besides Canada’s Big Five banks, credit cards are offered by smaller and digital banks, as well as credit unions. Cards by Visa and MasterCard, Canada’s two largest credit card networks, are issued through banks, credit unions and retailers. The third largest, American Express, issues cards directly in its own name and through select banks. Each company has their own partnerships with retailers, airlines and hotels to offer discounts and points bonuses, so read through and weigh their strengths and weaknesses before choosing a provider. For example, American Express cards offer some of the highest rewards on your everyday spending, but aren’t as widely accepted as Mastercard credit cards.
4. Know the details
When shopping around, be aware of the nuts and bolts: the card’s credit limit, grace period, interest rate, fees and penalties, cash advance fees, how the balance is computed, and how credit card rewards are calculated. Use Ratehub.ca’s credit card rewards calculator to compare cards side-by-side. Know exactly how your card works so you can make your card work for you.
Don’t forget about the additional benefits. Sign up bonuses are appealing, but perks such as travel insurance, car rental insurance, purchase protection & assurance, concierge service and much more may be appealing to you. These benefits could be worth a few hundred dollars a year, but it’s also important to read the fine print so you know exactly what you’re entitled to.
5. Choose a limit
Your credit limit is the maximum amount you can charge on your credit card. Depending on the type of card, your income level and your credit history, it could be anything from $500 to tens of thousands of dollars. For example, you may apply for a credit card that has a $5,000 limit, but only qualify for a $1,000 limit on the card based on the provider’s assessment of your income and credit history. Limits aren’t necessarily set in stone—in some cases, you can ask the issuer to increase your limit once you’ve established that you pay your bills on time and don’t max out your card. If you’re new to credit, or are rebuilding bad credit, it’s wise to start with a lower credit limit.
The bottom line
Ultimately, you should apply for the card that offers you the best overall value. To better your chances of obtaining credit at good rates in the future, always pay your bill on time—one of the most important reasons to use your credit cards responsibly is to build up your credit score. Paying your balance in full each month will get you the most for your money.
Ratehub.ca’s Credit Card Recommendation
If you’re looking for a great rewards card, Ratehub.ca recommends the American Express Cobalt.
- Annual fee: $120 (charged at $10 monthly), but will be increasing to $155.88 (charged at $12.99 monthly)
- Welcome Bonus of 20,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership
- Earn 5 points per dollar on restaurants, coffee shops, bars, grocery stores, and food delivery
- Earn 2 points per dollar on gas, taxis, public transportation and travel (air, water, rail, or road transport, plus hotels)
- Earn 3x the points on eligible streaming subscriptions in Canada
- Welcome Offer: 2,500 points every month you spend $500 in your 1st year (total value of $300 in statement credits redeemed towards purchases charged to your Card or $225 in American Express® Prepaid Cards
- Earn 1 point per dollar on all other purchases
- Transfer points 1:1 to several frequent flyer and other loyalty programs
This card currently has one of the highest earn rates on the market, giving you five points (that’s 5% back in travel rewards) per dollar spent on groceries and restaurants, two points per dollar on travel and gas, 3x the points on eligible subscription services in Canada, and one point per dollar on all other purchases.
There’s no minimum income requirement, and the card’s welcome offer adds up to a potential $300 value that more than offsets its $155.88 annual fee for the first year. You’ll also get a suite of benefits, including complimentary concierge services, extensive travel insurance, and access to American Express Invites. This card’s flexibility makes it a win: You can earn and redeem points for travel on any carrier with no blackout dates, and use points to cover all taxes and fees.
If you’d prefer a credit card with no annual fee, we recommend the Tangerine MoneyBack Card.
- No annual fee
- Earn 2% cash back on purchases in up to three categories of your choice, and 0.5% cash back on all other purchases
- No limit on how much cash back you can earn