There could be any number of reasons why you’re applying for a credit card. Maybe you need to make purchases right away but want to pay for them over time. Or you’re trying to build up your credit score or rewards points and are planning on paying off the card every month. Whatever the reason, there are several types of credit cards and options within each type to choose from.
Consider the following factors to help you narrow down those options and find the right card for you.
What Types of Credit Card Are There?
Whether you have a specific type of card in mind or you’re simply looking for a credit card for the convenience and/or to build credit, before deciding on the type of card or a specific credit card, get to know a little more about these cards.
Rewards Cards
Unlike Air Miles, LeoVegas bonus or gas station loyalty cards where you have nothing to lose by signing up, reward credit cards come with annual fees and interest. However, if you plan on paying off your card every month and have a loyalty program you’re enrolled in, using this type of card can build up your points quickly, get you discounts where you shop, reduce your airline ticket prices, give you cash back on your bills and many other perks and freebies. Before deciding on a rewards card, consider the following:
- How much is the annual fee compared to the dollar amount of the discounts you receive?
- Are there any restrictions/how easy is it to redeem the rewards?
- How long does it take to build up the points you need?
- How realistic is it that you will use the rewards?
Low-Interest Credit Cards
A low-interest credit card is for you if you plan on carrying a balance and taking time to pay off your purchases. Before you decide on the right one for you, compare the annual percentage rates (APR) and the annual fees and ensure that the interest rate stays the same, as some low-interest cards offer introductory rates that increase after a specified period.
Balance Transfer Cards
If you’re looking to consolidate your credit card debt and pay lower interest, balance transfer cards offer a low introductory rate for this exact reason. But be 100% sure on what you’re signing up for before committing. You need to know:
- The fee to transfer a balance. It is sometimes free but can also be a percentage based on the amount transferred, i.e., there’s a limit to how much you can transfer for free or at a low interest rate.
- Limitations. There may also be a restriction on how much debt you can transfer in total.
- Purchase APR. This could be a higher interest rate than what you currently pay for new charges to your credit card(s) that would negate any savings you get from transferring the debt.
Student Credit Cards
Student credit cards are tailored for students by offering low interest rates and credit limits, and some offer discounts from partnered retailers. Be sure to read the fine print to know how long these terms last and what happens after you graduate.
Secured Credit Cards
Secured credit cards are ideal for people trying to build or rebuild their credit. They require a deposit, and the credit limit will either be the same as the deposit or slightly lower. You make purchases and payments on a secured credit card like you would on an unsecured (regular) card. The deposit is only used if you fail to make your monthly payments.
Before deciding on a secured card, ensure with the bank that using their secured card responsibly will build up a positive credit payment history and increase your credit score over time; whether you can apply for an unsecured card later and how long it takes; and how, if at all, an annual fee affects your deposit.
Foreign Transaction Credit Cards
In Canada, the most common example would be a U.S. dollar credit card. Foreign transaction cards can save you money on transaction fees and currency exchange rates if you travel and/or make online purchases outside of Canada. Consider how often you would benefit from these discounts vs the annual fees, interest rates and other costs to know if a foreign transaction card is truly a cost-effective option.
Other Considerations
Some other things to keep in mind when comparing credit cards are if there are other fees you have to pay, e.g. cash advance or inactive fees, and whether you need a minimum credit score to qualify for a certain card. You can check your credit score and get a credit report online for free from Equifax Canada. It’s a good idea to check these every once in a while to know where your credit stands and to ensure that you haven’t been the victim of identity theft, i.e., that there aren’t any credit accounts in your name that you didn’t open.