Credit cards are a convenient way to build your credit score, finance purchases, and earn rewards. There are numerous benefits, but you should also be aware of the potential downsides.

Click here for a more in-depth guide on how credit cards work. 

The Benefits of Credit Cards

These are the top advantages of credit cards and why you should consider getting one. While there are many advantages of debit cards, credit cards offer better rewards and help you build credit. 

Credit Card Rewards

Most credit cards offer some type of lucrative rewards program. These are three main types of credit card rewards:

Points and Rewards Cards 

Rewards credit cards earn points on every purchase. Typically, each point has a fixed value, like the Amex Membership Rewards Points, which has about a one-cent per-point value. 

These points can be redeemed for many rewards, such as a statement credit, merchandise, gift cards, flight vouchers, and more. 

Some of the top reward credit cards include:

• American Express Cobalt Card – earn up to 5x Membership Rewards points for every $1 spent 

• Scotiabank Gold American Express Card – earn up to 6x Scene+ points for every $1 spent 

• RBC ION+ Visa Card – earn up to 3x Avion points for every $1 spent

• American Express Platinum Card – earn up to 2x Membership Rewards points for every $1 spent, plus travel perks 

• TD Aeroplan Visa Infinite Card – earn up to 2x points for every $1 spent 

Cashback Credit Cards 

With cashback credit cards, you generally earn a fixed percentage of cash back on every purchase. Some credit cards have higher earning categories, like groceries and gas, where you can earn an elevated percentage of cashback. 

Most cashback is applied as a statement credit or direct deposit to your bank account once a year or once a month. 

Some of the best cashback credit cards include:

• SimplyCash Preferred Card from American Express – earn 4% cash back on gas and grocery purchases and 2% back on everything else

• Scotia Momentum Visa Infinite Card – earn 4% cash back on groceries and recurring bills (like rent!), 2% back on gas and transit, and 1% back on everything else 

Travel Rewards Cards 

Travel rewards credit cards are typically co-branded with a specific airline, allowing users to earn rewards that can be redeemed for flights, upgrades, and other travel-related benefits. 

These credit cards earn points or miles for every dollar spent and often have boosted rewards rates for travel-related purchases. 

They generally come with credit card insurance and travel insurance, and some of the best credit card rewards include airport lounge access, priority check-in, and hotel and dining credits. 

For example, three big companies have co-branded credit cards with Air Canada, allowing you to earn Aeroplan points on all purchases.

Our top picks for the best travel rewards credit cards: 

• Scotiabank Passport Visa Infinite Card – earn up to 3x Scene+ points for every $1 spent, no foreign transaction fees and six complimentary airport lounge passes 

• American Express Platinum Card – earn up to 2x Membership Rewards points and access perks like an annual travel and dining credit and unlimited access to airport lounges

To learn more about travel rewards credit cards, how to maximize the benefits, and access to the best travel deals, subscribe to The Chexy Rundown.

Welcome Bonuses 

Most credit cards offer a welcome bonus of extra cashback or points if you spend a certain amount in the first few months of being a cardholder. Other credit cards offer incentives like gift cards, travel rewards, or merchandise as a one-time bonus. 

Some top credit cards offer welcome bonuses of up to $2,000 in value, like the Amex Platinum Card and the CIBC Aventura Visa Infinite Card.  

Low Interest Rates 

Some credit cards offer low interest rates of 9.99% to 14.90% instead of the much higher interest rates of up to 25.99% that most credit cards charge. 

Low-interest cards are great for beginners or those carrying a monthly balance. They typically don’t offer the benefits that regular credit cards do, but the low interest rate can be worth it. 

Some of the top first-time credit cards with low interest rates: 

• Scotiabank Platinum American Express Card – 9.99% interest rate on purchases and cash advances 

• Scotiabank Value Visa Card – 12.99% interest rate on purchases and cash advances 

It Helps You Build Credit 

Having a credit card and paying off your balance in full each month helps you build credit and achieve a high credit score, as your payment history is reported to the credit bureaus. 

To build credit fast, ensure you don’t spend more than 30% of your credit limit, pay the balance on time each month, and monitor your transaction history. You can also pay rent with your credit card with Chexy and opt into the Credit Builder feature to start building credit on timely rent payments. 

Some of the best credit cards for good credit include the American Express Cobalt Card and the RBC Avion Visa Infinite Card. 

Image by Pabitra Kaity from Pixabay 

It’s Accepted (Almost) Everywhere

Visa and Mastercard credit cards are accepted almost everywhere in North America and the world, which makes them much easier to use than a debit card. 

Certain purchases, like hotel stays and car rentals, are much easier to make with a credit card. It is easier, better and safer to make these purchases with a credit card as you’ll not only get points or cashback, but your purchase is secure if anything goes wrong. 

If you’re travelling in a foreign country, businesses won’t always accept your debit card. 

It’s Convenient 

With a credit card, you don’t need to worry about how much cash you have or the balance in your chequing account. If you’re short a certain amount in your account, you can make the purchase with a credit card and have a buffer of about a month.

However, you must pay off your credit card on time every month and monitor your bank account to ensure you’re not spending more than you can afford. 

You Can Use It To Pay Rent

With Chexy, you can use your credit card to pay your rent and earn rewards and cashback. On top of that, you can build credit on rent payments and split with roommates. 

If you bundle your home services, like wifi, phone, and tenant insurance, you can reduce your Chexy fee by up to 0.30%. 

You Can Easily Track Your Spending 

Every purchase is reported on your monthly credit card statement and through your online banking platform. This provides a useful record where you can look back, see your biggest spending categories, and create or modify your budget. 

Fraud Protection 

You can easily freeze or cancel your credit card if you suspect fraud or have gotten your credit card stolen. Most credit card companies also make it easy to dispute a charge or return a defective product.

When Should You NOT Use a Credit Card?

As many benefits as credit cards have, they are not a good idea if: 

You Can’t Pay Your Balance On Time

While paying off only the minimum balance on your credit card can seem like an easy and simple option, you’ll need to pay off your purchases with interest added on top of that each month–which can really add up. Making purchases this way will put a dent in your credit score. 

You Typically Spend More Than You Can Afford 

If you have difficulty sticking to a budget and tend to spend more than you should, a credit card may not be a good idea for you. If you’re not careful, you could end up digging yourself into a hole, accruing debt with interest.

You Can Only Get a Credit Card With a Low Credit Limit 

If your credit limit is only a few thousand dollars and you tend to spend more than that each month, be careful when using a credit card as spending more than your limit can result in fees and will lower your credit score. 

Adjust your spending habits early on and ensure you don’t go above your credit limit. 

The Downsides of Credit Cards 

Despite all the benefits credit cards provide, here are a few downsides to keep in mind: 

Temptation 

It’s tempting to tap your credit card without thinking about how expensive things are–especially when almost every store accepts cards. You can rack up a balance quite fast, and if you don’t pay it off in full every month, you’ll be in danger of accumulating debt. 

Annual, Monthly, and Other Fees 

Some credit cards have annual or monthly fees, which can be as high as $799 for the Amex Platinum card. While the rewards almost always justify the annual fee, it is another added cost on top of your monthly spending. 

Interest Rates 

Most interest rates on credit cards in Canada are around 18.99% to 22.99%, which can be a lot if you carry a balance each month. The longer you wait to pay off your credit card, the more expensive it will get month after month. 

Tips for Using Credit Cards Responsibly 

Follow these top tips to use your credit card responsibly and avoid paying interest, fees, and accruing debt. 

Don’t Go Over Your Credit Utilization Ratio

Your credit utilization ratio is the amount of credit you’re using divided by the credit available to you. It’s good practice to keep your credit utilization below 30%, as going over this limit can put a dent in your credit score. 

For example, if you have a $15,000 credit limit, you should not spend more than $4,500. 

It’s also a good idea to keep credit card accounts open, even if you no longer use them. Leaving them open maintains your credit score and can even give it a boost. 

Don’t Open Multiple Accounts in a Short Amount of Time 

Applying for more than one credit card every few months isn’t a good idea, as each credit inquiry is a “hard” credit check and can lower your score by a few points. 

Generally, you should wait at least three to six months before applying for a new credit card. 

Make Payments on Time and In Full 

Payment history is one of the most important factors determining your credit score. Late payments can stay on your credit report for up to seven years, and not paying your balance in full can result in interest and late fees. 

Try to set up automatic payments to pay your credit card bill in full on the due date. 

Turn on Balance and Transaction Alerts 

Credit card balance alerts let you know if your available balance or credit dips below the amount you set. It’s best practice to set this alert at 30% of your credit limit so you can manage your credit utilization ratio. 

Transaction alerts notify you every time a purchase is made. This is a great way to detect fraudulent activity and see where your money really goes.

With Chexy, you can use your credit card to pay rent and earn rewards. You can also manage and increase your credit score, split rent with roommates, and more. 

Get started with Chexy today. 

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FAQs

What do you need to get a credit card? 

When applying for a credit card, you’ll need to provide these documents:

• Your name

• Email address

• Date of birth

• Residential address

• Personal annual income and other household income

• Homeownership status

• Employment status

Read more about how to apply for a credit card in Canada. 

What are the advantages of debit cards vs credit cards? 

Some advantages of debit cards include:

• There is no interest charged

• You don’t accumulate a balance

• It may prevent you from spending more than you have in your account 

• Credit score doesn’t matter and isn’t affected by debit card use

• You can pay your rent and still build your credit