How to Choose a Credit Card in Canada

So many Canadians feel overwhelmed with constant credit card fliers coming through the mail or even getting emails or store associates trying to upsell you with new credit card incentives and cash backs. It’s tempting to be hasty to choose a card while being pulled in all different directions, but taking your time to choose the right one can be rewarding in the long run.

Like most Canadians, you are most likely choosing to apply for a credit card with your local bank or one that gives you travel points without reading the fine print.

Most credit cards can be promoted to you under the guise of reaping rewards and benefits but can rack you up with considerable interest fees and additional charges. Taking the time to choose the right credit card for you can mean significant savings for you and your family.

How to Choose a Credit Card – What You Should Know

1. Your Credit Score Matters

It is important to start the credit card hunt by checking your credit score. Your credit score is a numerical representation that lenders use to help them decide whether you are trustworthy to provide credit to. Your score is a three-digit number that is calculated by numerical weights applied on various aspects of your file.

A formula is used to calculate your final credit score based on your payment behavior, how long your accounts have been open, how much you currently owe, and how often you have applied for credit. So now you are probably wondering, what is a good credit score?

Higher credit scores are most ideal. Each lender sets the range of what they consider a good or poor credit score, but on average a score of 660+ is good. A credit score of 700+ is excellent and if you are lagging behind around in the ranges of 300 to 400, you could be at risk for being potentially denied credit. In the eyes of lenders, the lower your credit score, the riskier of a bet you might be.

Credit scores are crucial in the modern-day as it gives banks or credit card lenders a quick, objective look at your credit history in order to help them give you the stamp of approval for a new credit card.

So if you think your score is lower than you originally thought, it does not hurt to double-check your credit report to see what is potentially dragging your score down. Sometimes you can chalk it up to error but most times, your payment behaviour can be the real culprit. Time to take a look at how quickly you are paying off your card and tweak some of your spending habits.

2. Choosing Your Credit Card Type

With so many options in the credit card market, it is so easy to get overwhelmed. The best suggestion is to go with the card that suits your needs and is aligned with your lifestyle.

If you are an aspiring digital nomad or want to take time off to travel the world, you could be looking at a handful of travel rewards credit cards.  If you like a good bargain and love to earn while you spend, cashback or no-fee credit cards might be your thing.

Knowing your spending limit and how much you can afford to pay off your debt every month is key in choosing the right card to avoid carrying an even greater debt with racked up interest fees. Consider a low-interest credit card to avoid heavy interest fees. In the case you need assistance in paying off a loan, you can look into a balance transfer credit card

If you need to build your credit or are looking to fix your low credit rating, check out secured credit cards. For students, there are many student cards that cater to your lifestyle and offer low or no fees. 

3. How to Choose a Credit Card Lender

Most Canadians gravitate to applying for a credit card with their home back since it is easier to have all their savings and chequing accounts in one place. However, that can stop you from enjoying rewards or benefits that you otherwise might have participated in.

Canada’s top five biggest banks (TD, RBC, BMO, Scotiabank, and CIBC) all offer competitive interest rates and great reward benefits depending on your needs. It might serve you well however to look into smaller banks, digital banks, or credit unions, as well as each lender, as they all have their own perks and downsides.

Credit cards by Visa or Mastercard are also popular choices and each company has partnerships with retailers, airlines, or hotels to offer perks. 

4. Read the Fine Print!

It is highly encouraged to shop around and familiarize yourself with the details of the credit card you are considering. Credit cards can vary when it comes to the credit limit.

The credit limit is the maximum value you can charge on your card and depending on the type of credit card, your salary, and your payment history, your limit can be capped from $500 to thousands.

It is also important to be aware that limits are not forever – sometimes, you can request your lender to increase your limit after a history of good credit history. By paying bills on time and not maxing out your card, some lenders automatically increase your limit without you having to send in a limit increase request.

It is essential to study the fine print so you are aware of what you might be charged. Other fees to consider are the interest rates, overdraft fees, cash advance charges, and grace periods for your credit card. 

Credit cards are a great way to spend while earning cash back or and reaping the perks at discounted hotels, shopping or flights. They are also a great way to build credit so you can apply for other important loans such as your mortgage or a small business advance.

Ultimately, you should consider all the benefits and drawbacks different cards offer that provide the best value for you.

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