Canada's Best Credit Cards: November 2024
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Credit cards are a great way to pay safely, earn rewards and improve your credit score. They are so ubiquitous it is hard to imagine getting by in Canada without one today.
Did you know that there are two credit cards in circulation for each person in Canada? According to statistics from the Canadian Bankers Association, in early 2021, there were 76.2 million Visa and MasterCard credit cards in Canada.
With that said, there are a few risks associated with paying with plastic. This guide will help you understand how credit cards work, how to find the best credit cards and how to use them without getting yourself into trouble.
How do credit cards work?
Credit cards are one of the most popular ways to pay in Canada, but if you have one, understanding how they work is crucial.
When you pay for something with a credit card, you do not buy it directly as you would if you handed over cash. Instead, the credit card issuer purchases it on your behalf. At the end of the month, they send a statement for your spending. You have the choice to pay all or part of the balance. Any remaining balance from that period begins accruing interest after the due date.
Banks like RBC and Scotiabank and smaller credit unions issue credit cards. Big stores get in on the game too. You can choose a Canadian Tire credit card, a Home Depot credit card or even a Walmart credit card.
Issuers make money by charging merchants a small fee for processing the purchase (usually between 1 and 2%).
In turn, they use merchant fees and interest payments of other borrowers to give great credit card rewards and benefits.
Credit cards operate on one of three major processing networks in Canada: Visa, MasterCard and American Express, often abbreviated as Amex.
For most consumers, there aren’t appreciable differences between Visa and MasterCard. Both are processors for card issuers like banks and stores. The issuers decide their offer, meaning Visas and MasterCards offer a variety of fees, tiers and rewards. Visa and MasterCard are accepted almost everywhere.
American Express functions differently. It is its own processor and issuer. It offers a more limited range of cards but offers consistently great benefits. They typically have high annual fees. Amex is widely accepted by large retailers, but a few small businesses and restaurants may not accept it.
How do I apply for a credit card?
Are you looking for your first card? No worries. Applying for a credit card is easy.
There is a credit card out there for almost everyone.
Here are the steps:
1. Shop for a credit card that matches you!
The credit card comparison tool at the top of this page is a great place to start. Consider annual fees, interest rates, rewards and foreign transaction fees. Big spenders with a high income may prefer a premium rewards credit card. For others, points on gas or groceries purchases are a big attraction. Secured credit cards are a great option for new credit card users and others who want to get started building up their credit history.
2. Look at the eligibility requirements of the specific card
Make sure you meet the eligibility criteria before applying for a card. Income requirements and credit score requirements differ between cards. Finally, you will need to be a Canadian citizen or resident who has reached the age of majority 18 or 19 years old depending on your province.
Good to know
Wondering if you will get approved for a specific credit card? Check with the lender before applying. Most publish minimum income requirements on their pages.
3. Apply online
Today, it is easiest to apply for a credit card online, in person, by phone or by mail. During the application the credit card issuer will likely to ask you the following:
- Name and birthday
- Address and contact information
- Employment information
- Gross annual income
- Your Social Insurance Number
Approval is usually very quick. If you apply online for a credit card, you may even be approved within minutes.
How is interest calculated on credit cards?
Understanding how credit card interest works can help you use them responsibly and minimize your costs. If you don’t pay off your credit card balance by the due date, you will owe interest. Credit card interest rates are among the highest interest rates you’ll find from a bank. If you must carry a balance, pay as much as you can comfortably pay as quickly as possible. Interest is expensive.
Interest on credit cards is given as an annual rate or APR annual percentage rate. Despite this, interest is charged daily once you pass the due date. A credit card interest calculator can help you understand the math behind your interest charges or you calculate yourself with the formula below:
Good to know
Credit card interest = [APR/365 days] × average daily balance × days in the billing cycle
For example, assume you have a 20% interest rate and an average $5,000 average daily balance for the month. You would owe $82.12 in interest at the end of the month. Here's the math:
- 20% APR ÷ 365 days = 0.000548
- 0.000548 × $5,000 = 2.7379
- 2.7379 × 30 days = $82.12 interest payment
Carrying that balance for an entire year without paying down the balance would mean shelling out $1,000 in interest.
While this may sound scary, credit card interest only really matters if you carry a balance. By paying in full every month you can avoid paying it.
Watch out!
Watch out for credit card cash advances. Pulling cash out of an ATM with your card is tempting, but cash advances usually accrue interest immediately rather than at the end of a billing cycle. It is a very, very expensive way to pay.
What is the minimum payment on a credit card?
The minimum payment on a credit card is the amount your credit card issuer requests each month.
Typically the minimum payment is a flat rate plus interest or the higher between a fixed dollar amount and a percentage of the outstanding balance. Check your credit agreement if you aren’t sure of your issuer's policy.
Failure to pay the minimum will result in late fees and, sometimes, increased interest rates.
! Remember that paying only the minimum amount can mean accruing significant interest. Even if you can’t pay off the entire balance at the end of the month, we recommend paying as much as you comfortably can.
For example, imagine you have a $1,000 credit card debt. Your card has an 18% interest rate.
Your minimum payment is 3%, or $30 each month. If you only pay the minimum payment each month, you will have paid $331.74 to your credit card company after a year. Of that, $165.68 would be interest. You would still owe $872.82!
Paying off the sum in its entirety would take you 120 months or 10 years! The total interest paid would total $798.89.
| Month | Minimum payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $30.00 | $15.00 | $15.00 | $985.00 |
| 2 | $29.55 | $14.77 | $14.77 | $970.23 |
| 3 | $29.11 | $14.55 | $14.55 | $955.67 |
| 4 | $28.67 | $14.34 | $14.34 | $941.34 |
| 5 | $28.24 | $14.12 | $14.12 | $927.22 |
| 6 | $27.82 | $13.91 | $13.91 | $913.31 |
| 7 | $27.40 | $13.70 | $13.70 | $899.61 |
| 8 | $26.99 | $13.49 | $13.49 | $886.11 |
| 9 | $26.58 | $13.29 | $13.29 | $872.82 |
| 10 | $26.18 | $13.09 | $13.09 | $859.73 |
| 11 | $25.79 | $12.90 | $12.90 | $846.83 |
| 12 | $25.41 | $12.70 | $12.70 | $834.13 |
| Total for year | $331.74 | $165.86 | $127.17 | $872.82 |
This example assumes you stop using the card entirely during this time. If you continue using it while only paying the minimum, even more interest will accrue.
What are the benefits of using a credit card vs the disadvantages?
Paying with credit cards means some fantastic benefits as long as you avoid spending beyond your means and rarely if ever carry a balance. Get rewards and cashback on your spending. Improve your cash flow and access money before payday if you are in a pinch. Using credit cards can be a double-edged sword for your credit score. Used well they are a powerful tool for boosting your credit score. On the other hand, missing payments and carrying a balance can hurt you. If you don't pay off the balance each billing period, the interest rates on credit cards are high. Rates in excess of 20% interest are common.
Credit Card Pros
- Rewards
- Cashback
- Included insurance
- Improve credit score
- Improved cash flow
Credit Card Cons
- Requires discipline
- Can hurt credit score if used irresponsibly
- High-interest rates
- Annual fee (sometimes)
What is an annual fee?
An annual fee is a once-per-year fee applied by your credit card company for having that specific card. Not every card has an annual fee. Many cards offer nice perks without one.
Annual fees are more common on low-interest credit cards and rewards credit cards. As a cardholder, you need to weigh the value of those benefits to you. The higher the fee, the more potentially valuable those benefits are. If you don’t charge enough, you may find yourself paying more for your annual fee than you get in value back.
American Express credit cards typically have high annual fees. Their Amex Platinum Card costs $699 a year! Premium cards with high annual fees may be worth it to big spenders and frequent travellers. Cardholders enjoy access to premium benefits like extra points, cash back, travel credits, access to airport lounges, travel credits and even a personalized concierge service.
There are popular credit cards without annual fees. These include TD credit cards, CIBC credit cards, BMO credit cards and RBC credit cards. Online lenders also have annual-fee free offers, like the popular Neo Cashback Rewards Mastercard.
Good to know
Shopping around can help you pick a card that makes sense for you and how you spend it. Compare credit card offers now and find your next card with or without an annual fee.
How many credit cards should I have?
There isn’t a single correct answer to how many credit cards someone should have. We recommend at least two.
Having and using at least one card shows lenders you use credit responsibly. A second credit card from a different issuer ensures that you have a backup payment option should your card be lost, stolen or declined. Beyond that, having multiple cards means you can better maximize your rewards. For example, a travel credit card might be the right call for those airline tickets and complimentary rental car insurance when you get there. Back at home, a different card might offer cash-back benefits or points on frequent purchases like gas or groceries.
Having multiple credit cards will also improve your credit utilization ratio. For example, imagine you have a single card with a $20,000 limit. You charge $9,000 for flights and hotels for the whole family. That would mean a credit utilization ratio of 45%. This is well beyond the recommended 30%. If you also had a second card with $15,000, you would have a ratio of 25.7% instead.
Not maxing out your available credit is important for maintaining your credit score. Carrying large balances brings your credit score down.
On the other hand, having many cards may be more difficult to manage. You could have multiple annual fees to pay. More available credit may encourage overspending too.
How can using credit cards build my credit score?
A credit score is a reflection of how you have historically used your credit lines. Using a credit card responsibly can improve your credit score quickly. Failure to do so can drag down your credit score and make it harder for you to be approved for other credit cards, mortgages or car loans later.
Responsible credit card use means:
- Paying off your balance on time every month
- Keeping your credit utilization ratio low. Essentially, if you have a $10,000 limit on your card, don’t carry a $9,000 balance over each month. Try to keep your ratio under 30%.
- Don’t close old credit cards. Closing a credit card lowers your available credit and increases your credit utilization ratio.
Good to know
Are you concerned about your credit score? Read our dedicated credit score guide and start taking steps to improve yours today.
What is the best credit card for me?
Choosing a credit card is exciting. Our comparison tool at the top of this page can help you decide. Weigh the benefits that matter most to you. Maybe you are a frequent flyer who will enjoy discounts or upgrades on your favourite airline. Or you could be a student just getting started using credit for the first time. When picking a model, consider your lending profile and target one you are likely to be approved for.
What is the difference between a credit card and a debit card?
The essential difference between a credit card and a debit card is that debit cards are tied directly to a cardholder’s chequing account. Make a payment, and it will be deducted almost immediately. This is unlike traditional credit cards that allow you to reimburse your spending later and apply interest.
Debit cards don’t typically offer rewards. Other than that, they work a lot like credit cards in terms of day-to-day use. They look the same and are convenient for making purchases without carrying cash. Debit cards even use Visa and MasterCard, the same payment processes as credit cards.
Good to know
Because debit card users spend their own money, anyone can get one regardless of their credit score.
What is a CVV on a credit card?
CVV stands for credit verification value. The unique number is a security measure on credit cards. It is three digits on MasterCard and Visa credit cards and four digits on American Express cards. The CVV makes it more difficult for people to use the card fraudulently for online purchases.
Are you wondering where the CVV is on your credit card? It is most commonly found on the back of a MasterCard or Visa to the right of the signature. For American Express cards, see the front.
What types of credit cards exist?
There is a wide range of credit cards designed for different kinds of borrowers.
The comparison tool above will let you shop for:
- Student credit card
- Rewards credit cards
- Low-interest-rate credit cards
- Balance transfer credit cards
- Aeroplan credit card
- Secured credit cards (for building your credit)
- Business credit cards
- Prepaid cards
- Travel
Good to know
Did you know the credit card as we know it today was invented in 1950? Although versions of credit existed long before, the Diners Club card is considered the first universal charge card. Diners Club co-founder Frank McNamara is credited as the inventor of the credit card. Anecdotally, the inspiration was when he realized he had forgotten his wallet after a meal in a New York City restaurant.
Read more about credit cards
- Credit Card Payment Calculator (2024)
- What are Canada's Best No-Fee Credit Cards? Our Picks for 2024
- What is Canada's Best Low Interest Credit Card? Our Picks for 2024
- What is Canada's Best Rewards Credit Card? Our Picks for 2024
- What is Canada's Best Air Miles Credit Card? Our Picks for 2024
- What is Canada's best Aeroplan credit card? Our picks for 2024
- Canada's Top 10 Balance Transfer Credit Cards. Our Picks for 2024
- What is the Best Credit Card for Small Businesses in Canada? Our Picks for 2024
- Our Guide to the Best Travel Credit Cards
- The best prepaid credit cards
- What is a Secured Credit Card?
- What is a Student Credit Card?
