How To Choose The Best Credit Card

Last updated August 3rd 2023


What Is A Credit Card?

Before you start flashing your plastic around, you should know what a credit card is. A credit card is a type of payment card that allows the cardholder to borrow money from a financial institution, typically a bank, to make purchases or pay for services.
These purchases can be in retail stores, online, or even over the phone, through any business that accepts credit card payments. It is a convenient and widely accepted method of payment in many parts of the world. When you use a credit card, you are essentially taking out a short-term loan from the card issuer, up to a predetermined credit limit.

Why Use A Credit Card?

Credit cards serve multiple purposes that, when used appropriately, can be very beneficial to you.  First and foremost they are a great way for you to build credit. What we mean by that is trust worthiness with financial institutions.
Great credit can make or break your application for big ticket items such as a car or home. You can earn rewards points for certain things you value and redeem them for purchases. More on this later.
Some bank accounts have a maximum number of transactions you can debit in a month, anything over that would incur a fee per transaction. Credit cards do not have such a limitation. There is a convenience factor as well in that you don’t have to carry as much cash with you.
Finally, in some aspects of life credit cards are necessities such as paying for parking or making hotel reservations.

How Do They Work?

Credit cards are issued by banks or other financial institutions. To get a credit card, you need to apply for one and meet certain criteria, such as being the age of majority (18 in six provinces: Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan. The age of majority is 19 in four provinces and the three territories: British Columbia, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, and Yukon). You’ll also need a good credit history and stable income. Each institutions’ criteria may be different but qualification can also depend on the card you are applying for.
For example a bank may require you to have a certain credit score to be approved for a card or the credit card itself may have a minimum income requirement.
Once your credit card application is approved, the issuer assigns a credit limit to your card. This is the maximum amount you can spend using the card. The amount approved is known as a revolving limit. Let’s say you get approved for a $10,000 limit. That is the maximum you can spend before a payment is required. If you have a balance of $8,000, you can spend $2,000 more. If you pay $3,000 off that balance well now you can spend $5,000 more.  The credit limit is based on your creditworthiness and ability to repay the borrowed money.

When you use a credit card to make a purchase, the card issuer pays the amount on your behalf to the merchant or service provider. You don’t have to pay immediately for the transaction at the time of purchase. Typically on your statement you’ll see a Transaction Date and a Settlement Date. The Transaction Date is the day you made the purchase. The Settlement Date is the day the merchant received payment from your issuer.

Credit card transactions are grouped into billing cycles, typically lasting around a month. At the end of each billing cycle, the card issuer sends you a statement that lists all the transactions made during that period.

When you get your statement either online or in the mail, you’ll see it includes a minimum payment amount, which is the least amount you must repay by the due date to keep the account in good standing. If you miss the payment date or you pay less than the minimum required then that will hurt your credit rating. If you only pay the minimum, you’ll be charged interest on the remaining balance.

If you don’t pay the full balance by the due date, the financial institution you got your card from will charge you interest on the remaining amount. The interest rate is expressed as an annual percentage however interest is charged on a daily balance.

To complicate things even more there is Purchase Interest and Cash Advance Interest. Purchase Interest is at it sounds, on anything you have used the card to buy and did not pay by the due date. Cash Advance Interest is charged when you use your credit card in an ATM to take physical cash out or when you transfer an amount from your credit card to your checking account, savings account, or just about anywhere through online banking or at an ATM.

Credit cards often come with various fees, such as an annual fee, late payments, going over your limit, foreign currency exchange,  or cash advances.

Now that we have a basic understanding of what a credit card is and how they work let’s breakdown how you can choose the best credit card for you in just four simple steps. That’s really the key point to understand; there is no “best” credit card, the card must match your individual needs.

1) Know What You Want From The Card


The first question to ask yourself when considering a credit card is What do I want to get back from this card? The benefits available are bountiful. A common program from banks would be their own point system where you earn proprietary points based on spending.

Banks will often let you use these points for travel, paying down your balance, and buying items such as cookware, jewelry, or gift cards through their online store. Financial institutions typically partner with travel or entertainment companies like British Airways, Aeroplan, Air Miles, Hilton, Marriot, the Scene program, and various restaurants. When you earn points with these affiliated cards you can redeem them as dollars for the appropriate company.

Perks don’t just come in the form of reward systems. Some cards provide a lower interest rates if you think you may carry a balance although if you’re planning to carry a balance perhaps using your debit card is the better option. Some prestigious cards grant access to certain airport lounges which can be very useful if you’re a frequent traveler. Insurance is an often overlooked value as well. Different cards will have different levels of insurance for things like medical when out of your province or country, protection against damaged, lost (sunglasses is a big one), or stolen items, lost baggage, and warranty extensions.

There are cards that give holders cashback on all their purchases. Cash is returned on a percentage basis anywhere from 1-4% depending on the category with gas and groceries being the more lucrative purchases. Cash is accumulated and paid out on the anniversary date of your credit card approval.

Other lifestyle options include U.S. credit cards where purchases and payments are made in American dollars. This would obviously by suitable for those travelling to the States often. Finally, each institution will likely have a card geared towards students which may include no annual fee and easy qualifications.

Now that you know what’s out there you must consider the best way to maximize your points.   

2) Know What You Spend Your Money On


Credit cards will accumulate points based on what you spend. Various categories have different multiples to rack up your rewards for instance. One card may give out three points for every dollar you spend on gas, two points for groceries and one point for all other purchases. Program specific cards like Aeroplan could give two points for every dollar spent through Air Canada and 1.5 on everything else.

Knowing what you spend your money on underscores the importance of having a budget. If you don’t know how to create a budget, no worries we have you covered right here. If you use your card frequently outside of Canada, be aware of foreign transaction fees. Some cards will levy a charge just for the purchase and another percentage on top of the foreign exchange rate.

Our suggestion is if you swipe your credit card while travelling, do some research on fees amongst your options. The next point to consider is somewhat related to understanding what you plan to spend on your card.

3) Know What Limit You Want


Limits matter with credit cards for a few reasons. One thing to know is some cards have minimum limits; for example ones with the “Infinite” label issued from a few of the big five banks require a $5,000 minimum limit as a result of a $60,000 minimum individual income or $100,000 household income. If you don’t have the income to support, unfortunately you’ll have to look elsewhere.

What if you’re planning to take your family of four on a vacation to a tropical destination. There’s a good chance a $2,000 limit won’t support the fun-in-the-sun- trip. Make sure you have enough room to buy what you need to on your card without worrying about going over your limit.

Conversely,  if your primary use for the plastic rectangle is for when you’re already travelling, you could consider using a tandem approach of cash and card. In this case you can opt for a more modest limit in the event you lose that card and someone else goes on a shopping spree with it. Or maybe you only use it in emergencies. If you’re just starting to build your credit a smart play is to use it for small, manageable purchases so there’s no concern of repayment when the bill comes. These three points give an argument to maintain a smaller limit. 

One argument for a larger limit is utilization. Having a balance of less than 30% of your max limit will help improve, or at least maintain, your credit score. Our last point has to do with preparedness.

4) Have Supporting Documents Ready


You can apply for a credit card online, by phone, or in person. If you’re doing it in the office of a financial institution representative it’s not a bad idea to bring some supporting documents. These can come in the form of pay stubs dated within the last 60 days, the most recent year or two of T4’s, and if you’re really prepared, although it may be unnecessary unless you have a recent job change, is a letter from your employer confirming details like position, wage, salary, full time or part time, and start date. These documents can make your application processes smoother with a higher degree of accuracy.

Wrap Up


So there you have it. We hope this guide will help you maximize the benefits of a credit card based on your goals. Again, the title may be a tad ambiguous because there is no “best” credit card, just one that is best for you. To find out the five tenets banks and credit unions use to determine your credit worthiness you’ll need to check out the 5 C’s.

Step 1: Find your current Annual Percentage Rate (APR) and current balance in your credit card statement. 

Step 2: Divide your APR rate by 365 (for the 365 days in the year) to find your daily rate. 

Step 3: Multiply your current balance by your daily interest rate. 

Step 4: Multiple the interest charged per day by the amount of days in the cycle.

Your credit card balance for the month: $10,000

The interest rate on the credit card: 21%

The billing cycle: 30 days.

21% / 365 or 0.21 / 365 = 0.0005734

0.0005732 x $10,000 = $5.734 interest per day

5.734 x 30 days = $172.02 charged for the month



There is no grace period with Cash Advances like there is with regular purchases. Interest on Cash Advances begins the same day you make the transaction.