Best Credit Cards in Canada

Written by Robert Ferry on September 23, 2022
Best Credit Cards in Canada

Credit cards are vital in today's world as they can pay for anything that accepts a Visa or Mastercard. Most often, people do not have cash on them, but they carry a credit card as an additional identity, which can also be used to pay for grocery purchases, shopping, dining, etc. So the need to own a credit card is always high. Moreover, credit cards are further used to check a person's credit score if they need to purchase something. That purchase can be an internet connection, mobile phone connection, a car, a house, etc.

This guide will help you understand credit cards and how they function. We will also learn about the incentives you can earn from owning a credit card. The article will also cover credit card interest and help readers understand different interest rates. We will also learn about credit scores creditors use to check your financial position. Also, we will include the best credit cards you can purchase from the financial industry.

How Do Credit Cards Function?

Both in-person and online purchases of products and services can be made using credit cards. Their credit score and other variables determine the line of credit of a person. These variables include the person's income, credit score, etc; any bank or credit union would consider all such elements before approving the credit card.

The ability of a credit card to behave like a short-term loan makes using one over cash or a debit card a possible benefit. When using a credit card, a person typically has until the end of the billing cycle to pay back the money they owe to the bank or creditor.

Some cards also provide features like purchase and travel insurance, along with benefits like cash back or travel rewards that are added incentives to owning a particular credit card. The drawback of owning a credit card is that interest will add up and accumulate to a large amount that may turn out to be difficult to pay. Moreover, the credit score of the person will be badly impacted.

How Do Incentives on Credit Cards Operate?

With a rewards credit card, a person can earn some amount back from their purchases through set percentages set by the bank or the credit union whose card is being used. These percentages can be similar or different depending on your credit card. Some credit cards have the same percentage, called flat rate cashback credit cards. For example, a certain card will make you earn 2% cash back on all the purchases you make using it. These purchases can include groceries, gas, dining at restaurants, etc.

However, other percentages are different, so they depend on the item you buy and the number of items purchased. Such rewards come in the form of cash back, which means you earn some amount while making a purchase. These awards can also be earned as loyalty points or miles that can later be used to cash for a certain amount or use the miles for traveling purposes and get a discount in return.

Different businesses have their kinds of credit cards. For example, in the airline industry, you have Airline credit cards through which you can make miles and get a discount on the ticket price.

Hence, you must be aware of your spending habits before you decide on a credit card and then later regret getting it. Some people face financial problems because they spend more than they can repay. So, it is better to know your buying power to evaluate how much can be repaid back with interest.

How Does Interest on Credit Cards Work?

Credit card companies like banks and financial institutions like credit unions calculate interest rates based on the average daily balance method. The interest gets compounded through this method, and it accumulates daily. It is important to note that the daily interest rates vary each day, and paying off the loan on the credit card is better before a large amount of interest is charged. So if you have an outstanding balance from yesterday, that will come into action when the daily interest is calculated. Hence, financial experts always recommend having a low or zero due balance.

Many people are unaware that their daily interest rate is evaluated by dividing the card's overall APR by the total number of days in a year which is 365 days. This will get you your daily rate of interest that you can multiply with the amount due in your balance accumulating to the overall amount you need to pay. For example, let's say you need to evaluate the average daily balance on your card that has a balance of $1000 on the first day of the billing cycle with an APR of 15%. So you will divide 15 by 365 days and then multiply the answer by the balance on the card. The resulting amount will be the total amount you will need to pay the creditor.

Let us look at the difference between APR, APY, and Interest.

APR vs. APY vs. Interest

APR, which is short for annual percentage rate, is the percentage charged over a year. So if you have a balance of $1000 on your card, with an APR of 15%, then the interest would be $150. However, most credit card companies use the average daily balance method to evaluate the interest rate. So just looking at the APR would give you an incomplete look, and a person cannot estimate the total interest they would need to pay.

APY, which is short for annual percentage yield, is not used specifically by credit card companies. Still, it is important to understand the financial side of things concerning credit cards. Through APY, you can learn the total interest a person can make in a year on various things. These may include deposit accounts like savings accounts and certificates of deposit (CDs).

So, to make things simple for you, always remember that with APR, you need to pay the amount on your credit balance or other lines of credit. However, with APY, you can earn interest on the amount deposited at deposit accounts like savings accounts.

How to Apply for a Credit Card Application?

The credit card application process has different steps to fulfill before your credit card is approved and sent to you via mail. The initial step, which has immense significance, is that you need to check your credit score from major credit bureaus like TransUnion, Experian, etc. You can also check your credit rating from a credit card issuer who may run a soft check or hard pull on your credit.

After you know your credit score, the next step would be to select a credit card that fits your needs and specifications, keeping in mind your buying power and credit score. The best way to select a credit card is to understand what you will use it for. Once you know that, you can shortlist the various cards that fulfill your criteria.

There are mainly three types of credit cards: rewards credit cards, low APR credit cards, and credit building credit cards.

The next step would be to check that you pre-qualify for the credit card. If yes, the good news is that you will get the credit card sooner. If not, you cannot expedite the process and take the typical route of getting the card approved. Several creditors in the US and Canada allow you to check if you pre-qualify for any of their cards. These financial institutions include American Express, Bank of America, Capital One, Chase, Citibank, Discover it, etc. It is essential to know that pre-qualifying for a card does not mean you have approval for it.

It is believed that selecting the right card for you can be challenging, but applying for the one you have selected is comparatively easy. You can apply for credit cards either online or through in-person branches. Once approved for a card, the next step is to heed the terms and conditions listed on the instructions page, which you will sign to get the card. This cardmember agreement page certifies that you have read all the information on the page and would accept the terms written on it. The card will be mailed to your address in one to two weeks.

How Can the Credit Score Be Improved?

There are several steps that you can take to improve your credit score. The primary step you need to follow is to check your credit report, ensuring that you have any errors that adversely impact your credit score. These errors can happen, so it is better to ensure this is not the case. If it is the case, the next step would be to rectify it with the credit bureaus. Also, to improve your credit score, you must pay all the bills on or before time. With each payment made on time, it will have a positive impact on your credit score.

A person should also investigate the amount of debt they are under. The lower the amount, the better chances of having a good or above-average credit score. Suppose you recently applied for a credit card. In that case, the reporting agencies will not have enough information to conclude, so they will use the debt utilization ratio to measure your debt with the total income you generate. It is said that the credit utilization ratio has a 10% impact on the credit score. And so the percentage of credit utilization ratio should be less than 40%. The lower the value, the better chances of getting approved for the credit card.

To make this clearer, consider the following example. If a person has a $300 balance on their card, with the total card limit to be $1000, then they will have a credit utilization ratio of 30%. This also means that they are using 30% of their credit. Although this is lower than the 40% limit, it should still be lower if you need another credit card. Hence, the total credit utilization considers all the debt and liens of credit a person is subjected to, including what is owed and what is available.

What Is a Good Credit Score for Credit Cards?

A good credit score will vary from one lender to another. The cut-off score for good credit rating is not known for any lender, so you will have to go with the fico scoring model score and expect the lender to follow it too. So, if you have a fico score of 670 and above, you are in the good credit score range, and most lenders will grant you a credit card or other lines of credit.

Several creditors widely use the fico scoring model as a medium to determine the creditworthiness of people that come to borrow money as a loan or through credit cards. The fico score ranges from the lowest value of 300 to the highest value of 850.

What Is a Fair Credit Score for Credit Cards?

The fair credit score will vary from lender to lender, and you will not be told of the cut-off score between the good and fair credit score by any creditor. This information is not released to the public as it is too sensitive. So you would most likely have to predict that you follow under the fair credit score by checking your credit rating through the fico or vantage scoring model. Both of these models are widely used by creditors. The fair credit score per the fico model is between 580 and 669.

What Is a Bad Credit Score for Credit Cards?

There is no general threshold for bad or poor credit scores since each lender will evaluate the credit score as per the criteria set by them. But you can always consider the fico scoring model as a guide and see what the bad credit score is considered. All scores below the fair credit range, i.e., below 580, will be labeled poor credit scores. You ought to avoid such credit scores if you are looking to get a credit card. All businesses, including your purchases, consider your credit score before granting approval.

The lower your credit score is, the lower the probability that your credit card application will be approved. Those with a bad credit score will get approval for a secured credit card that asks to put something as collateral which is considered towards your credit limit. Secured credit cards also have volatile interest rates that increase the payable amount to a large value. Furthermore, there are several hidden fees attached to secured credit cards that you ought to avoid.

Best Credit Cards in Canada

In this section, we will look at the best credit cards you can apply for and which will suit you in terms of finance and spending habits. Knowing your buying power is essential before applying for a credit card. Many people do not do enough due diligence on their buying power and get a credit card they don't need. So it is better to know the reason you are getting a credit card and then shortlist the companies that provide such a card.

The following are the best credit cards offered in the market:

Chase Freedom Unlimited Card

The Chase Freedom Unlimited card is a Visa credit card issued by Chase. It has some of the most amazing features, like cashback and bonuses, that will help you pay off some of your debt. This card is best for those people that are looking to get a cashback card which is different for various categories. So you will not earn the same cashback value on all your purchases.

The following are the features of the card:

  • Cardholders can earn a 5% cashback on travel-related purchases like airline tickets. There is also a 3% cashback on getting medicines from a drug store or dining out at a restaurant. If you make any other purchases through the card, you will earn a 1.5% cashback.
  • There is no annual fee, so you will not need to worry about paying an additional expense on balance due. So this will decrease your payable amount.
  • The regular APR charged is between 17.24% to 25.99%, depending on the person's credit score and balance amount.
  • The foreign transaction fee is about 3% on every transaction outside the US and Canada. So you will need to pay 3% on each transaction as an added expense.
  • There is also a welcome bonus that you can earn through the card. You can earn 1.5% cash back on anything you buy, given that the amount in the first year is up to $20,000. So there is a cashback amount of about 300 USD.
  • The introductory APR for the first 15 months is 0%. This is only applicable to purchases and balance transfers.
  • You will need to pay a balance transfer fee of either $5 or 3% of the amount of each transfer. So the balance transfer fee will depend on the highest amount between the two options.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.

American Express Gold Card

The American Express Gold card by American Express is best known for its rewards and travel cards. Many people have used this card, so it is better to listen to their reviews of the people. If they have left a positive review about the card, then it is obvious they were satisfied with its use for the purpose they needed it for. Since this card is also known for traveling, you can bet to earn miles from it by purchasing tickets, paying for accommodation, etc.

The following are the features of the card:

  • You can earn 4x membership rewards by dining or having a take-out from restaurants through this AMEX credit card. You can earn 3x membership points by making a transaction for traveling purposes. There are 1x membership rewards on all the other purchases.
  • The card comes with an annual fee of $250 that must be paid either monthly or once a year. This fee is non-negotiable and must be paid.
  • There is no foreign transaction fee, so you can use this card to make purchases abroad that do not carry any other expense apart from the cost of the purchases.
  • There is a welcome bonus where you can earn 60,000 membership points if you spent about 4000 USD in the first six months of getting the card.
  • There is no introductory APR period.
  • No balance transfer fee is charged since that option is not a part of this card.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.
  • You will also get travel insurance on your baggage. For your carry-on bags, you will get insurance of $1250, and for your checked bags, you will get insurance of $500. This insurance will only come if the bags are considered lost or stolen.

Chase Sapphire Preferred Card

The Chase Sapphire Preferred card by Chase is known to provide the best welcome bonus against all the credit cards in the market. The Chase card is used by several people who have vouched for the welcome bonus to be better than any other credit card. Apart from the welcome bonus, there are several exciting features that the card has to offer to prospective cardholders.

The following are the features of the card:

  • People can earn 5x reward points on all purchases made for traveling, including airline tickets, hotel accommodation, etc. 3x rewards points will be earned on dining and take-out purchases. You can enjoy a flat rate of 1x rewards points on all the items apart from the ones listed above.
  • The card comes with an annual fee of $95 that must be paid either monthly or once a year. This fee is non-negotiable and must be paid.
  • The regular APR charged is between 18.24% and 25.24% variable depending on the person's credit score and balance. This regular APR is charged only on purchases and balance transfers.
  • There is no foreign transaction fee, so you can use this card to make purchases abroad that do not carry any other expense apart from the cost of the purchases.
  • There is no introductory APR period.
  • You will need to pay a balance transfer fee of either $5 or 3% of the amount of each transfer. So the balance transfer fee will depend on the highest amount between the two options.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.
  • There is a welcome bonus where you can earn 60,000 membership points if you spent about 4000 USD in the first three months of getting the card. Those points accumulate to $750, which can be used to pay off the credit balance.

Citi Double Cash Card

The Citi Double Cash card is the best Citibank credit card for no annual fee. The card has many positive reviews because it does not charge people the expense of an annual fee. Since the cost is reduced, a person will have to pay less to the creditor. The only payable amount would be the principal amount and interest. This is ideal for those that have recently started their credit journey, such as students.

The following are the features of the card:

  • A cardholder of this card can earn a total of 2% cashback. 1% cashback is determined on all the purchases that you make. In contrast, the remaining 1% is given to you once you pay your dues. Though this card does not offer the finest cashback rewards but having a flat rate cashback offer is decent enough.
  • There is no annual fee, so you will not need to worry about paying an additional expense on balance due. So this will decrease your payable amount.
  • The regular APR charged is between 16.24% and 26.24% variable depending on the person's credit score and balance.
  • The foreign transaction fee is about 3% on every transaction outside the US and Canada. So you will need to pay 3% on each transaction as an added expense.
  • People can enjoy a 0% introductory APR period for the first 1.5 years, enough to pay back their debt. However, this introductory APR is valid on balance transfers and not for purchases.
  • There is a balance transfer fee which is segregated into two different periods. For balance transfers that a person completes in 4 months, the fee would be 3% of each transfer. If the amount is less than $5, then $5 will be charged. The greater amount will be charged if the amount is more than $5. For balance transfers completed after 4 months, a 5% balance transfer fee or a minimum of $5 will be charged.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.
  • The welcome bonus with this card will get you $200 cash back after you spend about $1500 in the first six months of the account opening. This offer is for a limited time and will expire as soon as the 6 months period is over.

Discover It, Miles Card

The Discover It Miles credit card is well known for its no annual travel fee. Since the card comes with a miles program, you can enlist your mileage points to get discounts on your trip. The miles program further opens doors to new benefits. People who have bought this card have provided great reviews, which could be relied upon.

The following are the features of the card:

  • Cardholders can earn unlimited rewards up to 1.5x on every dollar they spend using the Discover credit card. These reward points can be accumulated and cashed out to pay for expenses or lines of credit.
  • There is no annual fee, so you will not need to worry about paying an additional expense on balance due. So this will decrease your payable amount.
  • The regular APR charged is between 14.24% and 25.24% variable depending on the person's credit score and balance.
  • There is no foreign transaction fee, so you can use this card to make purchases abroad that do not carry any other expense apart from the cost of the purchases.
  • The introductory APR for the first 15 months is 0%. This is only applicable to purchases.
  • The introductory balance transfer fee is 3% and can go up to 5% for future balance transfer payments.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.

Citi Simplicity Card

The Citi Simplicity credit card by the Citi group and banking is an ideal balance transfer credit card. People can use this card to transfer their debt to a new card and pay it off within the 0% introductory period without incurring any interest. This will save them valuable money.

The following are the features of the card:

  • This card offers no rewards, so you need to look into another option if you want a rewards credit card.
  • There is no annual fee associated with the Citi card, so you will not need to pay an additional expense for owning the card.
  • The regular APR charged is between 16.99% to 26.99%, depending upon the person's credit score and balance amount.
  • The foreign transaction fee is about 3% on every transaction outside the US and Canada. So you will need to pay 3% on each transaction as an added expense.
  • There is no welcome bonus associated with this credit card.
  • The introductory APR for the first 21 months is 0%. This is only applicable on balance transfers. The introductory APR for the first 12 months is 0%. This is only applicable to purchases.
  • You will need to pay a balance transfer fee of either $5 minimum or 5% of the amount of each transfer. So the balance transfer fee will depend on the highest amount between the two options.
  • Your credit score will be checked, so you must ensure that the credit rating is either excellent or good. Anything less than that would not be accepted, so it is vital to ensure that the credit score is 670 and above on the fico scoring model.

Conclusion

Before you select a credit card in Canada, it is vital to check the need to own a credit card. Sometimes, we think owning a credit card will solve our financial problems. But most often, people are seen going into debt because they make many more purchases than they could repay. So it is vital to understand your financial position. Next, you need to understand that not every card is made for you. Each person has buying power, preference, and needs, so they must act accordingly.

Financial experts advise that people do due diligence to know which card offers them the features and perks they would need in everyday use. If you need a credit card for purchasing groceries, a flat rate credit card would be suitable as it would offer a consistent cashback rate across all grocery items. However, if you do shopping quite often, purchasing a rewards credit card would be the ideal option.

Article written by Robert Ferry
We are an unbiased knowledge center for finance and our goal is to help you make your own, educated decisions about getting your credit life turned around.
Credit Optimal is an unbiased knowledge center and our goal is to help you make your own, educated decisions to getting your credit life turned around.
Copyright © 2022 Creditoptimal.com