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Choosing a Credit Card

Shopping for a Credit Card

When looking around for the best credit card for you, consider both the costs and features of each card you're considering.

Features include:

  • Credit limit
  • Widely accepted
  • Low interest rate
  • Auto rental collision/loss damage insurance
  • Security enhancements
  • Extended warranties on purchases
  • Emergency travel assistance
  • Trip interruption insurance
  • No-fee travellers' cheques
  • Low interest rate

Costs may include:

  • The interest rate on outstanding balances and cash advances
  • Annual fees
  • Transaction fees
  • Method used for determining finance charges

Things to Consider When Choosing a Card

Is it a Convenience?
Many consumers choose to pay their credit cards in full each month.

The majority of credit card (bank-issued credit card) holders say they pay off their credit card balance all or most of the time. These responsible consumers use credit cards as a convenient way to track their spending and to make purchases without having to carry cash or cheques. For these card users, the interest rate on a credit card may be incidental. They may be more concerned with the annual fee and the special features associated with the card they choose.

Do you plan ahead?
You're planning to redecorate, and you spot the exact wall mounted flat screen HD-TV you've been coveting on sale for hundreds of dollars less than you thought you'd have to pay.

You've been fairly restrained in your spending over the year, and you'll be getting your Christmas bonus in a few months. The plan starts to form in your head as you gaze at the sharp, clear image on the screen: you'll charge the TV to your credit card, pay what you can afford each month until bonus time, then pay off the entire amount.

This may be a good plan if:

  • You're sure the bonus will come
  • You limit your spending to the amount of the bonus (i.e. don't treat it like an endless supply of money
  • You've found a card with a credit limit high enough to accommodate the purchase and with a reasonable interest rate over the period of time you'll need to pay off the balance.

Using a card offering a low introductory rate can be one choice for financing large purchases over a short time if you are certain you will pay off the balance and are comfortable with the terms. Opening a credit account with the furniture store is another option, but retail-issued cards are notorious for their very high rates of interest.

Do you plan to maintain a balance?
Some credit-card users regularly maintain a balance on their cards. Just the same, most card users always pay more than the minimum and they shop for the card with the lowest rate to minimize the amount of interest to be paid every month. Shopping for the lowest interest rate is generally a good strategy for users who expect to carry a balance from month to month. The exception: if your average balance is less than $1,000, a higher annual fee on a low-interest-rate card could negate the low interest rate. If you plan to keep your balance small, look for a no-annual-fee card with the lowest interest rate you can find.

Gold and platinum cards

Gold and platinum cards occupy the highest echelons of the credit-card world. They offer a wide selection of add-ons and a healthy credit limit. But theirs is a club not everyone can – or should – belong to. Issuing banks usually require gold and platinum cardholders to meet higher standards of income and creditworthiness standards than those required by regular cards. The cards sometimes have higher interest rates and typically charge an annual fee. Only make a commitment to a gold or platinum card if you feel the perks it offers are of real value to you.

Typical value-added services of gold and platinum cards include:

  • Reward points or cash rebates on the net purchases charged to your card
  • Auto-rental collision/loss-damage insurance
  • Purchase security and extended warranty protection
  • Emergency travel-assistance services
  • Travel accident insurance
  • No-fee travellers' cheques

The Financial Consumer Agency of Canada website is a great resource and includes interactive tools designed to help answer questions about credit cards.