How to Choose The Best Credit Card –

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How to choose the best credit card: When it comes to choosing a credit card, several criteria must be considered: annual fees, interest rates, rewards, insurance, etc. Here’s how to get there.

According to the Canadian Bankers Association, 95% of adults in Canada have a credit card. It is estimated that each of them owns an average of 2.5 credit cards. Across the country, some 76 million Visa and Mastercard cards – the most popular – are in circulation.

But these precious pieces of plastic are not just for spending. They can also earn you various rewards or benefits, associated with a variety of loyalty programs.

Do you love traveling and are looking for deals on plane tickets or hotels? Do you often go to restaurants or the cinema? There is a card for every desire or situation.

But before you even begin to study all the options available to you, remember that this practical way of paying remains a loan that must be managed responsibly to avoid over-indebtedness.

“One of the most important things, when you have a credit card, is being able to pay the balance each month,” explains Sylvie De Bellefeuille, lawyer and budgetary and legal advisor at Option Consommateurs. On average, the interest rate for any credit card is around 20%. “At such a high rate, it’s an expensive way to borrow money,” she adds.

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How to choose the best credit card

How to choose the best credit card

Salary and credit score

“Not all credit cards are accessible to everyone. Some require a higher level of income than others,” explains Jean-Maximilien Voisine, founding president of Milesopedia, a platform that brings together a large community of points or miles users to travel at a discount.

Your credit score is also taken into account. The latter is an assessment of your credit history and your ability to manage the credit assigned to you. For example, if your payment history is poor, you could be declined for a credit card.

If this is your first card, make sure you choose a reasonable credit limit so that you can pay off the balance and build a good credit score.

With or without annual fees?

“A person who has never had a credit card is always better off starting with a card with no annual fees,” advises Jean-Maximilien Voisine. He adds that you can keep this card for a long time, which will have a positive impact on your credit history and make it easier for you to get another one.

This type of card will automatically renew each year, free of charge. On the other hand, a free card offers very few benefits or rewards. If you can’t pay your balance in full each month, you may be better off opting for a low-interest rate card, with rates ranging from 10% to 14% interest per year, but with often an annual fee.

If, on the other hand, you can pay off 100% of your balance regularly, it becomes worthwhile to take a closer look at cards offering rewards, cash back, and other benefits. But these options usually come at a cost. Annual fees can range from $50 to $550, with the average being around $100.

Cards with higher annual fees come with more benefits, such as travel insurance, car rental insurance, or extended warranties. “For a person who travels regularly or who makes large purchases such as household appliances, this type of card can be interesting,” believes Jean-Maximilien Voisine. Other bonuses may include access to Wi-Fi on a plane or to airport VIP lounges. [How to choose the best credit card]

Rewards programs

Three-quarters of Canadians have at least one credit card associated with a rewards program. The latter would even be an important priority when choosing a credit card, according to the Canadian Bankers Association.

One of the most common and popular forms of rewards is cashback. Especially since the start of the pandemic, since purchasing plane tickets using accumulated points has become less common in the last year.

How it works? As you make purchases, you earn cash back on the card, such as 4% on groceries, 2% on gas, and 1% on everything else. Once a year, or as it accumulates, a cash credit may be applied to your outstanding balance. Some credit cards, however, require cash back to be spent at specific businesses. This is the case for the credit card affiliated with Costco, in particular.

There are also travel-specific programs. For example, Air Miles and Aeroplan credit cards allow you to accumulate points to purchase discounted plane tickets with airlines, such as Air Canada. Others are affiliated with hotel chains like Marriott; points are then exchanged to rent rooms at a discount. [How to choose the best credit card]

Balance transfers

Credit card issuers sometimes offer balance transfers at particularly low-interest rates – between 0 and 5%, instead of the usual 20% – to lure you in.

Performing a balance transfer from one credit card to another can be advantageous to take advantage of these better interest rates, provided you go about it correctly.

Indeed, a balance transfer comes with certain important conditions to respect. Therefore, you will have to pay transaction fees equivalent to 1 to 3% of the amount transferred.

Read also: The Costco Credit Card is Not as Advantageous as You Might Think

Also, note that the attractive low-interest rate is often part of a promotion lasting six months to a year. Beyond this period, the average interest rate of 20% will apply.

Finally, make sure you don’t miss any minimum payments required on your new card. If this is the case, the promotional rate may end before the end of the normal period.

“To see your finances more clearly, do not make any purchases with your new card. Just gradually repay the transferred balance according to the established schedule,” advises the Milesopedia site. [How to choose the best credit card]

Read also: The Best Cash Back Credit Cards

Credit card comparator

To learn more about how credit cards work, visit this Government of Canada page. To help you make the most judicious choice of card based on your financial habits, you can consult a financial advisor or use our credit card comparator. 

Read also: Top 5 Best Credit Cards for Groceries

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