How to Choose the Best Credit Card For You: 5 Steps

Ever notice how we spend hours trying to pick the right outfit or deciding what restaurant to go to, but we barely spend more than a few minutes (if that) deciding what credit card would be the best choice for our needs?

When choosing the best credit card, important considerations include things like your credit score, types of cards, your payment practices, and what credit card rewards and benefits make the most sense for you. Let’s take a comprehensive look at each suggested step to help you pick your most suitable credit card.

Step 1: Check Your Credit Score to See Your Eligibility

Knowing your credit score is a crucial first step to getting the best credit card for your needs, because most credit card issuers determine your eligibility based on that all-important three-digit number. If you can’t meet the minimum credit score requirement, there’s no sense even applying for the card.

In Canada, credit reports and scores are determined by Canada’s two credit bureaus: Equifax and TransUnion. Scores are based on five main factors: payment history, credit utilization, credit history, credit mix and credit inquiries. 

Based on those factors, credit bureaus will give you a score between 300 to 900. Within that wide spectrum, there are five main different categories of scores, ranging from poor to excellent. (Note that if you don't know what your credit score is, you can get your credit score for free from Borrowell.) Here's a general overview of what each category means:

300 to 574: Poor

This range will typically apply to those who have run into some credit problems in the past or who are too young or too new to Canada to have an extensive credit history. In this range, it’s very difficult to qualify for a regular credit card and you’ll more likely have to apply for a secured credit card.

575 to 659: Below Average

With a below average score you have some chance of being approved for basic credit cards, though you likely won’t have access to premium rewards or cash-back credit cards. 

660 to 712: Fair/Average

The average Canadian credit score is 660. In this range, you'll be approved for a large selection of credit cards in Canada, though some of the top rewards and cash-back cards may still require a higher score. 

713-740: Good

If you have a good credit score, you’ll be eligible for pre-approval for many credit cards because credit card issuers will view you as a creditworthy borrower. As long as you fit the income requirements, you’ll have a great chance of success when applying for almost any credit card in Canada. 

741-900: Excellent

In this range, your credit score puts you among the most creditworthy borrowers in Canada. 

Step 2: Identify the Type of Credit Card Best Fits Your Needs

Identifying the type of credit card that works best for you before applying is important because it ensures that you’ll get the most use from your card. The right card can complement your shopping patterns, rev-up any potential reward earnings, help build your credit score (especially important for those with bad credit) and even get you useful free benefits.

Here are some things to consider when identifying the right type of credit card, based on what you’d like to get out of your new credit card:

A Credit Card to Improve or Build Your Credit

Type Of Credit Card: Secured Credit Card

If boosting your credit score is a concern, a student credit card or low-interest annual fee card can be good options under the right circumstances. One of the best card solutions for a wide range of people — be they new immigrants, students or those with bad credit — is a secured credit card. 

Unlike a regular credit card, with a secured credit card you have to provide a security deposit as collateral to guarantee payment. Because credit card issuers can use the security deposit to pay off any outstanding balances a cardholder may have, secured credit cards are easier to get — even if you have a history of bad credit.

Things to consider when choosing a secured credit card:

Will the card help you build up your credit? 

Be sure to confirm with your credit card issuer that they are reporting your payments to a credit bureau. Unless your payments are reported, the card won’t help you build up your credit.

How much is the security deposit? 

Another important consideration is the amount of money your card provider requires as a deposit. Whatever you deposited will then become your credit limit so it may be appealing to provide a larger deposit. However, it’s important to keep in mind that you won’t have access to that money until you cancel your card, so if being short on cash is a common issue, it may be better to go with a credit card provider with a low minimum deposit requirement. 

Can you upgrade to an unsecured credit card later?

After 12 to 18 months of proving that you can manage a credit card responsibly, some credit card issuers may give you the option to upgrade to an unsecured card. If this is your goal, it may be wise to get a secured card with a credit card company that also offers unsecured cards in order to make the transition easier. 

A Credit Card to Earn Cash-Back or Rewards

Type Of Credit Card: Cash-Back or Rewards Credit Card

It’s the classic dilemma when looking for a rewards credit card: should you go for cold hard cash or choose rewards that could get you travel, merchandise and more. 

Things to consider when choosing a rewards or cash-back credit card:

Where and how do I spend my money?

Whether you go for cash or rewards, a rewards credit card will be of little use to you if you only earn a negligible amount of rewards. The key to ensuring you can maximise your reward-earning potential is to pick a credit card with accelerated earning categories that align well with where you spend the most money. If your biggest expenses are gas and groceries, then it’s essential to make sure you select a card that boosts rewards for those categories. 

How do I redeem the rewards?

If you like to keep things simple, cash-back cards generally have the easiest redemption process that require little effort on the cardholder’s part. Cash-back cards often provide automatic statement credits either monthly or annually. Rewards redemptions tend to offer more value but can be much more complicated to figure out. 

What kind of rewards would I benefit from?

If you sometimes struggle with making ends meet, then cash is likely the way to go. If you travel frequently and spend a big chunk of your budget on trips, then a travel rewards card may be the smart choice.

Will my cash-back or rewards be higher than the annual fee?

The best rewards credit cards will often have high annual fees. However, those cards are only worth paying for if your yearly rewards earnings offset the cost of the fee.

A Credit Card to Save Money on Interest

Type Of Credit Card: Low-Interest Credit Card

If you aren’t able to pay off your balance in full every month, low-interest credit cards can be a helpful tool.

Things to consider when choosing a low interest credit card:

What is the card’s ongoing interest Annual Percentage Rate (APR)?

Interest can add up to hundreds, if not thousands, of extra dollars in debt. Clearly, the best thing to do is pay off your balance completely every month. Failing that, the next best thing is to look for a card with the lowest possible APR. The average rate of interest on most credit cards in Canada is 19.99%, but there are cards that have APR rates that are much lower. Many low interest rate credit cards do charge an annual fee, but as long as the fee is lower than what you would accumulate in interest payments, it’s well worth paying.

A Credit Card to Pay Off Debt

Type Of Credit Card: Balance Transfer Credit Card

A balance transfer card can be a real lifesaver for someone who has credit card debt. Credit card debt can be one of the easiest kinds of debt to accumulate and one of the hardest to pay down, but a balance transfer promotion can be an easy and relatively affordable way to tackle mounting debt.

Things to consider when choosing a balance transfer credit card:

What is the card’s balance transfer policy?

Be sure to read the small print because that contains all the necessary information you’ll need to know before signing up for a balance transfer promotion, such as:

• The fee: Sometimes as low as $0 but usually range from 2% to 3% of the amount transferred. 

• Amount: There may be a restriction on the amount of debt you can transfer. 

• Purchase APR: New charges to the credit card are usually at the card’s standard (and much higher) interest rate.

How long is the low introductory interest rate offered for?

Some card’s may only offer the low introductory rate for as little as three to six months, though some offers may be for as long as a year.

Step 3: Look into your Payment Practices

One of the most crucial steps to finding the right credit card is being realistic about your payment practices. Generally, there are two kinds of credit card users: those who carry a balance and those who don’t. 

If you’re someone who uses their credit card often and diligently pays off their balance each month, then you likely don’t have to worry as much about the card’s interest rate as long as you’re going to keep up with your good payment habits. In that case, you’d likely benefit from a rewards credit card program.

If, however, you’re someone who tends to carry a balance on your cards, then you would be better off with a low interest credit card. Some low-interest credit cards have APRs as low as 8.99%, which is less than half of what regular credit cards might charge. You may have to pay a small annual fee (usually under $100 or much less) but it may well be worth it because you’ll save much more in interest charges by paying the fee. 

Step 4: Decide If You Should Have Multiple Types of Credit Cards?

Whether or not it’s a good idea to have different types of credit cards really depends on how well you can manage multiple cards. If you’re never late with payments and are generally quite disciplined with spending, then having more than one or two credit cards could actually be a real boon. 

That’s because having more than one type of card can really allow you to maximise your reward or cash back earning potential. For example, let’s say your biggest expenses tend to be groceries, gas, eating out and travel. It can be very hard to find a single credit card that offers accelerated earnings in all those categories. However, it’s much easier to have one credit card that, for example, offers higher category earnings on gas and groceries, and another card that rewards spending on travel and restaurants. Better yet, each card might offer different kinds of free perks like rental car discounts, airport lounge memberships and insurance packages, helping you cut costs on potential additional expenses.

That being said, stick to only one or two credit cards if you’re not very disciplined or organized with your finances, and you frequently forget to make payments. Juggling multiple secured or regular credit cards can lead to more debt and a decreasing credit score if you’re not careful. 

Apply For the Credit Card That Best Suits Your Needs

It's critical to compare credit cards and apply only for those that provide the greatest overall value. If you don’t, you could end up with a credit card that doesn’t help improve your credit score, minimizes rewards and exacerbates any bad spending habits you might have. 

Also keep in mind that you don’t want to waste time applying for unsuitable credit cards, because credit inquiries could negatively affect your credit score. For this reason, it’s smart to keep card applications to a minimum.

The Bottom Line

The key to identifying the kind of card that will work best for you is by carefully going through things like your payment habits, your credit score and the types of rewards you want. It may take time to carefully analyze your needs before getting a card, but the time spent will be well worth it when you find the perfect credit card that maximizes your spending power.