Credit Card Comparison

How credit cards work

A credit card is a form of unsecured credit issued by banks in Canada that allow users to make purchases without having to use cash. You can also use them to withdraw money from ATM machines at a fee.

All credit cards come with a credit limit which is assigned depending on the bank’s assessment of your perceived ability to make repayments. This is usually tied to your annual income.

Credit cards are different from debit cards which are tied to actual money in a savings account. When you use a credit card, you are essentially borrowing money from the lender to pay the retailer first, before you repay the bank at the end of your billing cycle. You will receive a statement at the end of each billing cycle that tells you the total amount you owe the bank. By making the repayments promptly, you will not be charged any interest fees.

There are many types of credit cards available that enable users to earn various types of rewards, air miles and rebates. This gives great incentive to sign-up for a card and earn rewards/save money simply by charging their purchases to the card.

What type of card are you looking for?

Rewards

Travel

Secured

Low Interest

Balance Transfer

Business

Cash Back

$0 Annual Fee

Comparing credit card features

How credit card interest works

What other features I should look out for?

For those who are new to credit cards, there are some key features worth mentioning so that you can optimize the use of your credit cards and learn about the related fees and charges involved.

• Credit limit. The credit limit is the amount you can use on your credit card.For student credit cards available in Canada, the credit limit is usually set between $500-$1000 for those who are not drawing an income. Regular credit cards usually require an annual income of at least $15,000 and the maximum unsecured credit limit may be set at 4 times the amount of your monthly salary. This does not mean that you will get the maximum credit limit for your credit card, as the rule applies to all the combination of all credit cards and unsecured facilities you with the bank.
• Grace Period. The grace period is an interest-free period where you can use your credit cards without incurring any finance charges. This is usually between a period of 20-25 days.
• Rewards. One perk of using a credit card is that it allows you to earn various types of rewards when you use them for payments. Reward types include cash rebates, discounts on partner merchants, earning air miles which can then be used for redemption of free flights or upgrades, as well as reward points which you can exchange for vouchers.
• Security. There are a number of security features that come with credit cards that help to make your transactions safe and prevent fraud. All banks require customers to activate their new credit cards before they can use it so as to prevent any intercepted cards to be used. Features include transaction alerts when your pre-defined limit has been made and One-Time passwords on merchant websites.

What are the costs of a credit card?

• Repayments. You’re free to repay as much as you like as often as you like. You’re required to make the minimum repayment when your statement is issued. The minimum repayment is usually 10% of your outstanding balance. You will pay a late payment fee if you don’t make the minimum repayment by the statement due date.

• Annual fee. This is the cost to own a credit card. The annual fee ranges from $0 to $400 or more depending on the credit card type. The credit card annual fee is deducted from your available credit and accrues interest at the purchase rate if it isn’t paid in the first statement period.

• Interest rates. There are no interest charges levied on your purchases if you pay off the card balance within the grace period. Beyond that, credit cards here typically charge an interest of 20-25% per annum on your card balances. As the interest is compounded and charged on a daily basis, they can easily accumulate if you keep rolling over your balances month-on-month.

• Other fees. Other fees you may run into include late payment fees, overlimit fees (a fee for spending past your credit limit), rewards program membership fees and cash advance fees.

Credit card application tips

While applying for a credit card doesn’t have to be complicated, it can come with certain risks.

1. Assess your needs. Before you begin your search, spend some time considering what you want, need and can afford with your next credit card.
2. Compare your options. Once you’ve decided what type of card you want, it’s time to begin comparing your options.
3. Are you eligible? Know the requirements for the card application – do you need a minimum income and do you meet the age limit?
4. Know your credit score. You should request a copy of your credit history before applying, so you can correct any possible errors on it and see exactly what the bank will be seeing when they assess your application.
5. Lower your credit utilzation ratio. If you already have a credit card balance, it’s wise to pay off your existing balances before submitting a new credit card application.
6. Don’t apply for multiple cards at once or within a short period. You may be tempted to apply for a second card just in case your first one doesn’t get approved, but don’t. Each credit enquiry that a lender makes about your credit history leaves a new mark on your credit file for five years.

Who is eligible for a credit card in Canada?

Make sure you confirm that you meet the eligibility criteria before you submit your application, as rejected credit card applications can have a negative impact on your credit score. Eligibility requirements usually include:

• Age. Cardholders generally must be at least 18 years of age for student cards and 21 years old for regular credit cards. This may vary by a couple of years depending on your annual income and your credit score for any previous cards. Your parents may also be able to secure you a credit card at a younger age if needed.
• Residential status. Most credit cards are open to application for Canadians, Permanent Residents and foreigners alike, subject to varying income requirements and additional documents.
• Minimum income. The minimum income requirement will vary between cards, but they usually start at $15,000 a year for most basic credit cards and $60,000 and above for higher-tier products.
• Credit history. All credit card issuers require applicants to have a good credit history.

Understanding your credit score

In Canada, there are two different national credit score bureaus which include Equifax Canada and TransUnion Canada. Banks can check your credit score online and discover your record of past repayments of loans and credit card debts.

Credit scores are arranged in three digit numbers in Canada. The score ranges from 300 to 900, where the higher the credit score, the better. For example, 900 is an excellent credit score, indicating the lowest risk of default.