With hundreds of different credit cards out there, signing up for a new one may require a lot of research. But instead of focusing on the benefits you get or the earn rate, you should consider the category of credit card that best suits your needs. Once you know what your primary goals are, you can narrow down your choices.
With the right credit card, you can manage your finances and potentially earn some rewards at the same time. These are the different types of credit cards out there.
Travel credit cards
The best travel credit cards in Canada can be lucrative since they allow you to travel for free or at a discount. With these cards, you earn points on all your purchases, but before you sign up, you need to do some research about the type of travel rewards points/miles you’re earning.
First, there are airline credit cards. Both Aeroplan and WestJet Rewards have credit cards where you can earn points. These cards are highly lucrative since they come with additional benefits such as free checked bags, lounge access, and companion vouchers. If you happen to fly one airline on a regular basis, then it probably makes sense to get a co-branded credit card.
Alternatively, you could collect bank travel rewards points. These loyalty programs are popular because they often come with flexibility. For example, with American Express Membership Rewards, you can use your points for any type of travel or transfer your points to a different travel loyalty program.
Cash back credit cards
If you don’t want to worry about points/miles, availability, or blackout dates; getting a cash back card is the way to go. With cash back, you earn money back on every purchase you make. While earning cash back is easy, you still need to do a bit of research.
The best cash back credit cards in Canada have different earn rates depending on the spending category. What you earn at grocery stores may differ from transit purchases. Take a look at your spending and pick a card that gives you a higher earn rate on the categories you spend the most on.
One card that’s incredibly popular is the Tangerine Money-Back card since you’ll earn 2% cash back on up to 3 categories of your choice and 0.5% cash back on all other purchases.
Low interest / balance transfer credit cards
For those who have existing debt, your priority should be reducing it. There’s no point in earning rewards if you need to pay interest. A better strategy would be to get a low interest / balance transfer credit card.
As the name implies, these types of credit cards come with a low interest rate. The rate is about 8-14% which is significantly lower than the standard interest rate of 20-21%. The real way you save is by taking advantage of the balance transfer option. With this promotion, you can lower your interest rate to 0-4% for up to 10 months. When your interest rate is that low, you can quickly reduce the amount you owe by tackling your debt. Just try to avoid spending more with your card.
Secured credit card
People who are new to Canada or individuals who are looking to rebuild their credit should consider getting a secured credit card. Although these cards typically don’t give you any benefits, they’ll help you improve your credit score.
Your credit score is important since lenders look at it when determining if you’re credit worthy. In other words, if you ever want a loan in the future, you’ll want a good credit score. Secured credit cards will help you improve your credit score even if your current score is poor.
The key thing to note about secured credit cards is that you need to deposit security funds. You can’t use this money to pay for your bills, but you’ll get it back if you cancel your card. The reason this is necessary is that you need to show the credit card provider that you’re ready to use credit responsibly.
Prepaid credit cards
Some people prefer not to use credit cards but not many online merchants accept debit. That’s where prepaid credit cards can be handy. Everyone knows how prepaid credit cards work. You load money onto them, and then you can only spend what you have available. It’s really that simple, but there are more options these days.
KOHO is my favourite prepaid credit card since it allows you to earn cash back on all your purchases. Since it uses the Visa network, you can use the card wherever Visa is accepted. That includes both in-store and online shopping.
There really is a credit card for every situation, you just need to find which one is best for you. Start with the type of credit card and then look at the individual features to help you decide. Remember, you can always switch cards later if your circumstances change, so there’s no need to think this decision is permanent.