Choosing the Right Credit Card for You

Consider whether you need a specialized credit card

In addition to standard, gold and platinum cards, there are some specialized credit cards that cater to special needs. Some of these specialized cards include:

Secured credit cards

A secured credit card is a card that requires you to pay the issuer a security deposit before you can use it. Your credit limit is normally set as a percentage of your deposit (usually 100 percent or more). For example, if you pay a security deposit of $500, you would normally get a credit limit of $500 or more.

You might consider applying for a secured credit card if:

• you have no credit history in Canada,
• you've had credit problems in the past and want to rebuild your credit score,
• you've filed for bankruptcy in the past.

What you'll need to obtain a secured credit card

To obtain a secured card, you'll need to deposit a sum of money with the credit card issuer. Depending on the credit limit you request, the required security deposit for a secured card can range from a few hundred to several thousand dollars.

As well as the security deposit, you may be charged a one-time "set-up" or application fee. Before you apply for a secured card, be sure to ask the credit card issuer whether you will have to pay a fee and whether it will be refunded if your application is turned down.

Your credit limit is normally set as a percentage of your deposit (usually 100 per cent or more). For example, if you provide the credit card issuer with a deposit of $500, you will likely be granted a credit limit of $500 or more. If you don't make your credit card payments, the credit issuer may use your deposit to pay down your credit card balance.

Making all your credit card payments on time will help you build a credit history or rebuild a poor credit score. Once your credit score is considered satisfactory, you may be eligible for an unsecured credit card, such as a low-rate or regular-rate standard card. At that time, the security deposit may be returned to you if you decide to close your credit card account after paying off the entire balance.

Interest rates and other fees that may apply

Secured credit cards normally have a higher interest rates than unsecured cards. Secured credit cards also usually have monthly or annual fees and, like other cards, have service fees associated with some transactions. For more details, see Understanding Credit Card Fees.

Interest and insurance on your security deposit

Most secured credit card issuers will pay you interest on your security deposit.

The financial institution that holds your deposit is either your credit card issuer, or another financial institution chosen by the issuer. No matter who holds your security deposit, check with your card issuer to see if your deposit is insured with the Canada Deposit Insurance Corporation (CDIC) or a provincial deposit insurance corporation.

CDIC insures eligible deposits (up to a limit of $100,000) held in financial institutions regulated by the Government of Canada. This protects you if the financial institution holding your deposit declares bankruptcy. For more information, visit CDIC's Web site or call CDIC toll-free at 1-800-461-2342.

Every province also has a deposit insurance corporation that protects deposits held at the financial institutions it regulates.

Tips for finding a secured card

Before applying for a secured credit card, check your credit report periodically with the two credit-reporting agencies in Canada: TransUnion and Equifax. If your credit report contains an error, have the error corrected immediately, since it may prevent you from getting an unsecured card. For more information on getting a copy of your credit report or correcting errors, see Understanding Your Credit Report and Credit Score.

Here are some precautions you should take when looking for a secured card:

• Be cautious about secured card offers from unknown institutions. If you have doubts about the integrity of a secured credit card offer, contact FCAC toll-free at 1-866-461-3222.
  
  
• Beware of secured card offers from issuers outside Canada. If you have problems, it may be difficult to resolve them if the company is not located in Canada.
  
  
• Avoid offers for secured cards that do not have a recognized brand name such as VISA, MasterCard or American Express. The lesser-known cards may be accepted at only a small number of stores or may require you to make purchases from a specific catalogue.
  
  
• Make sure you understand all the terms and conditions associated with a secured card before you accept it.

Student credit cards

Student cards are meant for students with limited incomes and generally have lower credit limits than regular credit cards. Low-interest rate student credit cards are available.

U.S. dollar credit cards

A U.S. dollar card may be right for you if you often shop in the United States and have a U.S. dollar account you can use to pay your credit card bill. With a U.S. dollar card, no foreign currency conversion mark-up is applied to purchases in U.S. dollars.

Retail credit cards

Retail cards offer discounts or reward programs at specific stores or retailers. Retail cards generally have much higher interest rates than regular credit cards. This type of card can usually be used only at the store that issued the card.

A retail card may be worthwhile if you shop at one particular store enough to benefit from its reward program. Be sure to weigh those potential benefits against any interest or fees you may pay.

Compare specialized credit cards with FCAC's Credit Card Selector Tool.