Can you name all the different types of credit cards there are off the top of your head? Most people can’t. For many, credit cards are just a convenient way to shop—whether online or in-person. But there’s more to credit cards than just being a convenient payment tool.
To help you find the best types of credit cards to keep in your wallet, let’s take a look at different types of credit cards available in Canada, what’s unique about each one, and what you can do to avoid excessive credit card debt.
Struggling with credit card debt? Check out our credit card debt calculator!
What Are the Different Types of Credit Cards?
When we talk about different types of credit cards, we aren’t referring to Mastercard or Visa. Instead, we want to distinguish the types by how they work or what specific benefits they offer.
With that in mind, here’s a shortlist of some different types of credit cards in Canada with brief explanations of what makes each type so unique.
1. Secured Credit Cards
Secured credit cards are distinct from other types of credit cards out there for one major reason: They’re backed by collateral you supply while other credit cards aren’t. Other than being backed by a security deposit you provide, secured credit cards work a lot like regular, unsecured credit cards.
- Secured credit cards are relatively easy to qualify for.
- Secured credit cards are a great credit rebuilding tool.
- Credit limits are sometimes determined by what you can put down as a security deposit.
- Some secured credit cards may have more fees than a typical credit card (so it’s important to research your options).
- Some secured credit cards don’t have rewards programs (which also helps discourage excessive spending).
A secured credit card is a good option if you cannot obtain a typical unsecured credit card but you require a credit card to complete certain transactions (i.e., rent a car, hotel bookings, etc.). It's also a good option if you're looking to rebuild your credit.
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2. Store Credit Cards
Some stores may offer their own store-branded credit cards that are, typically, only usable in the store offering the card (or a small family of related stores owned by the same parent company).
Sometimes, a store might offer a co-branded credit card—which may be used anywhere the credit card network’s brand is accepted, but only provides rewards (or offers better rewards) when used at the specific business the co-branded card is from.
- Often easy to obtain.
- Perks/rewards may be better than average for similar cards. For example, some store cards offer discounts on purchases made at the issuing store.
- Store cards may only be accepted at the store they’re issued from (or a small family of related stores).
- Interest rates can be high.
- For co-branded store credit cards, rewards programs can often only accrue or be redeemed at that store.
Store-branded credit cards are generally not the best option for you if you need a reliable payment method for all kinds of necessities.
However, if you find yourself frequently shopping at one “big box” store that offers the majority of your daily necessities, then it may be worth picking up their store credit card to access rewards and discounts—just be sure to pay off the balance in full each month to avoid interest charges!
3. “Rewards” Credit Cards
Many credit cards advertise “rewards” of some kind. This can take several forms, such as “cash back” where a fixed percentage of your purchase costs (depending on what they are) is credited to your account; airline miles/hotel credits that can be redeemed for free/discounted flights and hotel stays; as well as store-specific rewards, like purchase discounts or gift cards.
- When used wisely, rewards credit card benefits can help save money with minimal effort—but NOT at the risk of accumulating and carrying balances and paying high-interest costs.
- Rewards credit cards can encourage excessive spending.
- Rewards may not always be valuable to you based on your needs.
- Redeeming some kinds of rewards may be difficult if you’re not familiar with the process.
Many kinds of credit cards offer rewards, which makes this less a type of credit card and more of a modifier to other kinds of cards. When looking for a rewards credit card, it’s important to consider the specific types of rewards being offered to verify that they’ll actually be valuable to you.
For example, if you travel a lot for work (or fun), then a frequent flyer or hotel rewards card could be a great benefit. However, if you rarely travel, then such a rewards program would not be very valuable to you.
4. Introductory Offer Credit Cards (Low-Interest Credit Cards)
Many credit cards offer an incredibly low interest rate for the first few months that you have the card. In some cases, they may offer 0% interest (or something very close to 0% interest) for a limited time on balance transfers, while charging a higher interest rate for regular purchases. Therefore, it is not recommended to use the card for new purchases.
There may also be fees charged to transfer balances as well. Transferring a balance to a low-interest or 0% interest credit card can still be beneficial, but you really have to keep an eye on the card because the rate will skyrocket at some point, eliminating the benefit of the low interest rate.
- When used for balance transfers, they can help reduce interest charges as you work to become debt-free.
- Potential balance transfer fees.
- May be charged higher interest on new purchases.
- Potential annual fees.
- Post-introductory period interest rates (for both balance transfers and regular purchases) can be high.
When used carefully, a credit card with an introductory interest offer can be a great tool. However, it’s very important to be careful not to misuse the card by making new purchases with it.
Stuck with excessive credit card debt? Consider a Debt Consolidation Program!
5. Business Credit Cards
If you own or operate your own business, there are credit cards specifically designed to help you keep your personal spending and your business spending separate. These business credit cards work similarly to the typical unsecured credit card—providing access to a revolving line of credit. Where they differ is their intended use: covering business expenses.
- These cards are very useful for tracking business expenses—which can be invaluable during tax time.
- You can build up your business’ credit profile.
- Expenses on the business card can reflect negatively on your personal credit history if you fall behind on payments.
- There are restrictions on what a business card can be used for—e.g. you can’t use it to make payroll or property lease payments.
The risks with a business credit card are similar to the risks for any regular unsecured revolving line of credit. However, they can be invaluable to small business owners who need to cover expenses and track them for tax purposes. It’s important to be careful, though, since excessive spending can lead to accruing extra debt.
6. Debit Cards with a Credit Card Logo
This isn’t a “credit card” per se, in that you aren’t getting access to a revolving line of credit. Instead, some banks and credit unions offer debit cards with a major credit card logo on them indicating that the debit card can be used anywhere the credit card is accepted because it uses the credit card's networks.
But make no mistake: A debit card with a credit card logo on it is still a debit card. So any purchases you make using it means the money is coming straight out of your bank account. That also means it has no impact on your credit since you're not borrowing any funds.
The main benefit of having a debit card with a credit card logo on it is that you can use it to make purchases when debit isn’t typically accepted, such as online.
- You don’t have to worry about interest.
- You can use the debit card wherever credit cards with the same logo are accepted.
- Your credit history is a non-factor in getting a debit card with a logo.
- You may unconsciously treat it like a credit card and spend more.
- You risk overdraft if you spend too much.
- Debit cards with credit card logos do not help you build your credit history.
For many, a debit card with a credit card logo may be a good option. It has all of the convenience of a credit card (in some cases, you may not even have to enter your pin) without the temptation of buying a bunch of stuff on credit. It’s just important to track your spending carefully to avoid overspending.
7. Prepaid Credit Cards
While these aren’t true credit cards since they don’t provide access to a revolving line of credit, prepaid credit cards can be invaluable for someone who doesn’t have access to regular banking services, has a low credit score, still wants or needs the convenience of a credit card, and/or would like to control their spending.
Prepaid credit cards work by purchasing them at a retail location, financial institution, or online. The amount of money you load onto the card is what is available to spend. This is (somewhat) similar to secured credit cards in that you provide your own money upfront; however, prepaid credit cards have no impact on your credit because there is no borrowing involved.
- It’s very easy to control your spending with a prepaid card.
- You can reload the card with additional funds.
- Interest is a non-issue since there is no line of credit being drawn upon.
- Prepaid cards can be used almost anywhere a regular credit card with the same logo would be accepted.
- Prepaid cards have no impact on your credit rating or credit score.
- In many cases, losing a prepaid card is just like losing cash. (Check the prepaid cardholder agreement for information on lost/stolen prepaid cards. If the card was registered, it may be possible to recover the lost/stolen money.)
If you really need to tightly control your spending, then a prepaid card can be a great tool to have. For some, prepaid credit cards are also a useful gift idea that allows the recipient to choose whatever they want with the money.
How to Choose a Credit Card
The above list only covers a few of the most common types of credit cards. Also, it’s possible for a credit card to have several types at once. For example, a card could be a store credit card and a rewards credit card at the same time, or a business credit card might have an introductory interest rate period.
So, how can you choose the best credit card for your needs? Here’s a quick list of tips:
Ask Yourself if You Really Need a Credit Card.
First thing’s first, do you actually need a credit card, or is it just a “nice-to-have” item that would make shopping a bit more convenient? For online shopping, a bank card with a credit card logo on it can be just as useful as an actual credit card.
What Rewards Does the Card Offer?
The perks a credit card offers can make a big difference in how valuable the card is to you. Try to look for credit cards that have rewards programs that you’ll actually be able to use instead of offering things that you won’t.
Accruing a million points that you can’t redeem for anything you want or need to buy doesn’t really help much. Sometimes, rewards like discounts at a given store can be worth signing up for a card—especially if you’re able to pay the balance off in full each month.
Double-Check the Interest Rate.
Many credit card companies advertise one interest rate in big bold letters on the front of their mailer, only to have a little asterisk mark noting that it’s just the introductory interest rate.
Before signing up for any credit card, it’s important to get the credit card provider to give you a concrete figure on the interest rate after the introductory period is over.
Consult a Pro.
If you’re having trouble weighing the pros and cons of getting a new credit card or are worried about the financial impact it can have, it can help to seek an outside opinion from a financial advisor, money coach, or credit counselling service.
These kinds of services can often provide valuable insight and advice that can help you pick the best option to avoid racking up debt while still meeting your short-term financial goals.
Do You Have Excessive Credit Card Debt?
If you’ve fallen behind on your credit card payments and are getting called by debt collectors, you’re not alone. Many people—even those with lucrative careers—have fallen behind with credit card payments and found themselves in need of help.
This help can take many forms. For example, some may consider getting a debt consolidation loan if they have good credit and can get a better interest rate out of it. However, not everyone has the credit (or the collateral) needed to qualify for a consolidation loan with favourable terms.
This is where alternative options like a Debt Consolidation Program (DCP) can help. Instead of struggling alone as debts keep mounting higher, a DCP can help you resolve your debt more quickly and with less stress.
Our certified Credit Counsellors are available to provide advice on what you can do to get out of debt now. Reach out for help today!