There are many types of credit cards to choose from. This chart looks at the 4 most common. You can also use the Financial Consumer Agency of Canada’s credit card selector tool to compare your options.
|Type of credit card||Key features|
Prepaid credit cards
Prepaid credit cards work differently than regular credit cards. You load the card with cash, and then use it like any other credit card. You don’t have to pay back what you spend, because you’re really paying for your purchases with your own money. However, before purchasing a prepaid credit card, be sure to read and understand the rules and fees associated with the card, including possible fees for activation, usage, maintenance and reloading.
You can use the card to pay bills, shop at stores or shop online. When the card runs out of money, you can no longer use it. You can usually reload the card by going back to the financial institution you got it from. Or, you may be able to go online and transfer more funds to the card using your bank account or another credit card. You may also be able to reload your card over the phone.
If you lose a prepaid card or it is stolen, be sure to report it. Other types of credit cards may protect you if someone uses your card without your knowledge. You don’t have the same protection with a prepaid card. Ask these 10 questions before you buy a prepaid card.
Secured credit cards
With this type of card, you deposit funds with a lender to back up – or “secure” – the card. Depending on the lender, you may not be able to deposit more than $5,000. This type of card typically has higher fees and interest rates than standard credit cards. And you can only spend the amount of money you have deposited. Unlike a prepaid card, you have to pay back what you spend.
With secured cards, you aren’t really “borrowing.” You’re spending cash you already have. But if you have a bad credit history and can’t get any other type of card, you may be able to rebuild your credit rating using a secured card. That’s because the lenderLender Any person or organization that lends money.+ read full definition may report your payment history each month to the credit bureaus. If you make regular payments, your credit history can improve.
Finding the right card
The right credit card for you will depend on how you plan to use it and what matters to you. If you’ll carry a balance, you might want the credit card with the lowest interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition. If you’ll pay your card off in full every month, you might find that special perks like travel points or cash back matter more.
Choose your credit card carefully. Don’t be tempted by low introductory rates and reward programs. Choose a card that fits the way you plan to use it.