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How to choose a credit card that is best for you

By ATB Financial 8 January 2020 3 min read

It’s stunning to think that there are over 38 million active credit card accounts in Canada.

But why are credit cards so popular? And should you consider getting one? Most importantly, how do you go about choosing a credit card that is best for you?


Why would you consider getting a new credit card?

Getting a new credit card or a first credit card are effective ways to establish a credit history or rebuild a bruised credit score. Without a good credit score, getting any loan can be difficult or mean a high interest rate.

With the growing popularity of cash-back and rewards cards, more and more people are using their credit cards to save money, get a wide range of free items or travel more often.

Those with high card balances often take out low-interest credit cards to reduce the interest they pay.

When it comes to choosing a credit card that is best for you, the most important issue to consider is why you need one.


If you carry a balance, switch to a low-rate credit card

If you don’t pay off your balance every month, switching to a low-interest card could save you thousands.

Let’s say you carry a balance of $10,000. Switching from a credit card with a 19.9% rate to one with a rate of 10.9% would save you approximately $900 in annual interest. If your new card also offers a 0% introductory rate for the first six months, your interest savings in the first year would be approximately $1,445.

Almost all carriers offer a low-interest credit card option for you to consider. This option may require giving up certain rewards or benefits or having to pay an annual fee, but it's important to weigh those rewards and fees to the amount of dollars saved.

Cash-back credit cards

These cards are ideal if you don’t carry a balance and want to be rewarded with hard cash. Cards vary as to the percentage of cash you get and the kinds of purchases that are eligible.

Some cards give higher points on the dollar for certain items, such as gas, groceries, dining and entertainment, while others give the same amount for all purchases.

It makes sense to align your spending habits with the card’s rewards. For example, if you drive a lot, a card giving back a higher percentage for gas purchases might make sense.


Travel rewards credit cards

If you love to travel, these credit cards could be the best option. Look for travel rewards credit cards that are flexible, with no blackout dates, so you can travel whenever you want.

You can use points to book flights and also get extremely valuable extras, such as holiday and auto rental insurance, which can save you hundreds of dollars. Some cards also let you cash in points for electronics, houseware, jewellery, accessories and gift cards.

With all cards, look for welcome and bonus points when you first join – these can also be worth hundreds of dollars.


Annual fee or no annual fee credit cards?

Many people don’t see the benefit of paying to use a credit card. However, in many cases, cards with fees are worth considering. With low-rate credit cards, for example, annual fees can cost a small fraction of the amount of interest you save by switching. Also, the benefits of the card’s rewards and perks should be considered when weighing the option of an annual fee.

When choosing the right credit card, do the math: work out your annual savings with each card and see if they’re worth more than the fee. Many credit cards will waive the annual fee for the first year, so you have time to decide if the card is worth keeping.


Check before applying

There is a credit credit that’s right for you, but you may not qualify for all credit cards based on your household income or current credit score. It’s important to research the cards’ requirements before applying, because every application you make can bring down your credit score.


Choosing a credit card that is best for you

When it comes to how to choose a credit card, it’s important to consider your financial situation and your spending habits to find the card that works best in your life.

With many credit card options to choose from, you’re likely to find one that matches your needs. Need help? Give us a call to discuss choosing the right credit card for you.


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