For anyone new to credit cards, deciding which card to apply for can be a little overwhelming because of the number of options. And each one has different requirements, perks, benefits, and fees, so where do you even begin? Start by thinking about the type of credit card that will match your needs and lifestyle.
Here’s a breakdown of some of the most common types of personal credit cards.
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No-fee credit cards
If you’re thinking of applying for your first credit card or you’re not interested in collecting points or rewards, consider a no-fee credit card. As you can tell from the name, these types of cards have no annual fee. Many student credit cards also fall into this category.
- No annual fee, so the card is free
- Often easy to qualify and apply for
- May offer some perks and benefits
- Not as rewarding as other credit cards
What to consider
No-annual-fee credit cards are great for limited use or if you’re new to the world of credit cards. However, if you plan to use your credit card frequently, it might be worth choosing a rewards card, so you earn some perks from your spending. If you earn more in rewards than you spend on the fee, it can be worth paying a credit card’s annual fee.
Rewards credit cards
Rewards cards are one of the most common types of credit cards, and they fall into a few different categories:
- General rewards cards allow you to redeem your points for pretty much anything, from electronics to kitchenware to fashion accessories and more. Sometimes these types of credit cards are linked to a specific store or business, so you can only redeem your rewards at that retailer.
- Travel rewards cards let you redeem points for flights, hotel stays, and even vacation packages.
- Cash back cards offer a percentage of your purchases back as “cash,” which is usually applied as a statement credit.
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- Earn rewards in return for spending
- Often come with additional perks and benefits
- Options available different credit scores and income levels
- Rewards can expire or be forfeited for improper credit card use
- Some cards have earning caps on rewards
- Most programs have minimum redemption amounts
What to consider
Take note of the different spending categories offered by rewards credit cards. Some offer higher earning rates for groceries, while others will prioritize travel-related spending, like flights. To make the most of your rewards credit card, choose one that offers higher rewards for categories that match your spending habits.
Also, consider your lifestyle and the type of reward you’re most likely to benefit from — if you rarely stay in hotels, a hotel rewards card is not the best fit. Also, consider the annual fee. A higher annual fee often means better perks and benefits. However, it’s only worth paying a high fee if you use the perks extensively.
Best Credit Cards in Canada
Compare all different credit cards side-by-side and find out the best card that will meet your need with special perks and benefits
Low-interest credit cards
Many Canadian credit cards have an interest rate of 19.99%. However, some credit cards specifically offer lower interest rates. These cards are ideal for individuals who struggle to pay off their entire bill each month since the balance won’t grow as quickly as it would on a card with a higher interest rate.
Some low-interest credit cards offer balance transfer promotions, so you could choose to transfer your balance over from a high-interest credit card to save money. Promotional rates can be steeply discounted (or even 0%) for a certain length of time, often several months. Taking advantage of a balance transfer promotion can help you pay down a credit card debt faster.
- Lower interest rates help keep your debt smaller
- May offer balance transfer promotions, which can help you pay off a balance from a higher-interest card
- May charge a balance transfer fee, usually a percentage of the balance
- Promotional rates on balance transfers end and you may not have paid off the balance by then
- It could make it feel easier to carry a balance since it’s “cheaper” than a higher-interest card
What to consider
If you’re looking at a low-interest credit card as your first credit card, the big question you need to ask yourself is whether you’re ready for the responsibility of a credit card. If you aren’t sure you can pay off monthly balances before you even get started, that’s probably an indicator that you should wait until you’re more financially secure before getting a credit card.
If you’re considering a low-interest credit card so you can take advantage of a balance transfer, do the math. It’s worth taking the time to make sure that you’ll come out on top in the end, especially if you don’t think you’ll be able to pay off the full balance by the time the promotional rate ends. Factors to consider include credit card fees, balance transfer fees, and the regular interest rate.
Furthermore, if you struggle with using a credit card carefully, consider cancelling your other credit card once the balance transfer is complete to avoid the temptation to keep spending.
What if I have bad credit?
If you have bad credit or no credit, you should look at a secured credit card. Secured credit cards are created for and marketed specifically to people with bad credit, so they are easy to qualify for. These types of credit cards are “secured” with collateral (a refundable deposit) that the lender will claim if you default on your payments.
If you use the card carefully, that deposit will be returned to you when your credit score improves, and you can apply for an unsecured credit card. If your goal is to build your credit, make sure the issuer will report your payments to one of the credit bureaus.
If you’re just looking for a way to spend money that is safer than cash, consider one of the best prepaid cards.
How do I choose the best credit card for me?
When it comes to choosing the best credit card for you, there are several things to consider:
- Lifestyle: What type of credit card will benefit you the most?
- Eligibility: Look at the requirements for each card before you apply. Make sure your credit score and annual income match the card’s requirements.
- Fees: Plenty of credit cards have $0 annual fees, but others charge $500+ annual fees. If you choose a card with an annual fee, make sure you’re earning enough rewards that it’s worth paying.
As you consider which type of credit card to apply for, go with what will benefit you the most right now. You can always upgrade your credit card or apply for a new one later if your circumstances change.