Canadian Credit Card guide — What you need to know — part 1

Shoukri K.
Sep 17, 2015 · 15 min read

The previous post discussed Credit in general, credit score, and credit history. This post is going to get into the details of Credit cards, where to apply, what type of credit card is best, and especially talk about people on Work permit or who have a social Insurance number starting with 9. While the advice in this post is general and applies anywhere in Canada, the Credit Card recommendations (which banks and which credit cards) applies more specifically to Toronto or to Ontario in general since other provinces may have other credit card providers that I’m not fully aware off.

In the previous post I was saying I was rejected over and over again whenever I tried to apply for new credit cards. It took me quite a bit of research and observing others’ experiences to piece the puzzle together.

When you are on a work permit, study permit, or a refugee claimant in Canada you are treated as a ‘temporary resident’. When you are a temporary resident your social insurance number is a special one, one that has an expiry date and starts with the digit 9 (refer to the Social Insurance guide for more info on what the SIN card is). This apparently is a red flag for some credit card providers because they look at you as a ‘flight risk’. You are here temporarily and you can leave at any time. The reason I said some is because I have seen different credit card providers treat me differently. Some have extended credit to me while I was on work permit while others declined. However it is important to note that even though I got rejected for a ‘regular’ credit card by some banks they still offered me a Secured Credit card.

What is a Secured Credit Card?

What happens to my deposit after I get my credit card?

Now you are probably wondering when will you see that money again. You will see your money again when one of the following happens:

  1. You close your credit card account. If you choose to close your credit card account then deposit is returned with the interest.
  2. When you are no longer a temporary resident such as when you land in Canada, become a permanent resident, and your social insurance number is no longer starting with the cursed 9.
  3. Your credit score and history improves dramatically that your bank decides that you are great and no longer need to be ‘secured’. I haven’t seen this happen so this is pure theory at this point in time.

Another important factor to whether you can obtain a non secured credit card:

What credit card should I get and from which institution?

RBC Royal Bank

TD Bank

CIBC

BMO

Scotia Bank

Chase Canada, Co branded, Department Store Cards

My recommendation is to stay away from department store credit cards. They may give you special promotions here and there, but you don’t get great value from having these credit cards in the long run.

Credit card Types, Fees, and Interest rate

Credit Card types

Cash back cards:

Now there are a few gotchas with cash back credit cards that you have to pay attention to:

  • Different cash back percentages for different types of purchases: for example my current card gives me 2% cash back on groceries, 1% on everything else. So if i spend 100 bucks on groceries I get back 2, if i spend 100 bucks on gas, i get back 1 dollar.
  • Caps / limits: when you read the card guide or information on the website you will see a nice little star (*) or cross sign (†) next to the percentages then you know there is something going on.

See the example in the picture below

RBC_Cashback_mastercard_agreement
RBC_Cashback_mastercard_agreement

So in this case there might be a reduction in the percentage as you spend more (earn 2% on the first 6000 dollars spent, then 1% thereafter). Sometimes there are even hard caps (such as earn 1% on everything you buy for the first CAD$10,000. THE BASTARDS!!!

Even with the limitations of the cash back cards I still believe they are best. If you think the above is confusing wait to see how confusing it gets with the Travel, Points, and Rewards cards!!!

Rewards cards

I think the whole purpose of introducing the point system is to confuse the FUCK out of you, and for the providers to make money. You really have to do serious math to understand the value of the ‘reward’, and good luck understanding what purchases give you what amount of points, and how this translates to money. You cannot do this translation. It is Impossible!. Let me try to help you understand the scheme; In my example above say a macbook’s price is 5000 dollars and you need 50,000 points to get it, this means every ten points = 1 dollar. You wish! Because if you try to do the same math on the iPod, the numbers won’t match. You may find that in this case every 20 points is a dollar. WTF!

The reason this is done is for them to make / save money. So some rewards may be underpriced and some may be overpriced depending on the demand for the item, etc. etc.

Airline / Travel cards

Similar to the rewards cards Airline and travel cards gives you ‘Travel miles’ with every purchase you make. Where it gets confusing is what these miles are (sometimes they use points), how you can use them, and for what!

Mile != Mile

  • Yup, they call them travel ‘miles’ but they don’t really mean miles. Points is a more accurate name, since you might be flying to China for example and this trip is a 1000 miles, but you may need 10,000 reward miles for this trip (do you see a pattern here? it is the same trick as the point system above uses).
  • When you have 400 miles on your card it does not mean you have 400 miles to fly, it means you have flown 400 miles already !
  • Today a fly to China may cost you 5000 points, but in a few weeks it may cost you 10,000.
  • Certain Cards deal exclusively with certain airlines, while others deal with all airlines. With the specific cards you cannot simply go to any airline website, give them your card number and say BOOK IT!
  • You accumulate more points if you go to certain restaurants, places, etc. So there may be offers and promotions specific to places, while you might NOT accumulate if you go to others.
  • Every card from every provider I have seen is different. Each one has its own specific Gotchas , terms and conditions.

There are many more issues and complications with travel rewards / airline cards so I won’t get into them in this post.

All of these issues aside I like CASH! I like money! I don’t travel frequently hence cash for me is more worth it than Travel Rewards, so I choose Cash back!

Auto / Gas cards:

When I use my CIBC card at Petro-Canada I automatically get a saving of 2 cents per litre from today’s gas price! that’s an auto discount! i don’t have to do anything to get it. Additionally when I use my card I accumulate Petro-points. When I accumulate a certain number of Petro-points I can use them to buy additional ‘Fuel saving cards’ which give me an additional discount per litre. These cards give me around 5–10 cents saving per litre for 200 litres. They may have some tricks here and there, but this is straightforward enough for me to benefit. If you choose to use fuel saving/ gas cards you can, but use them wisely. If you want to own this kind of card beside your main card i would say go for it.

Balance Transfer cards

Low Interest rate cards

Credit card Fees and Interest rates

  • Annual fees: Kind of a subscription / access fee. As long as you have the credit card you will be charged this annual fee. This varies between 0 and 200 dollars (per year). There are lots of cards that are FREE they have NO ANNUAL FEES. Choose these cards unless you have a really good reason to pay an additional fee for a credit card.
  • Additional card fees: Some banks charge you an additional fee to give you an additional card. Additional cards are typically used by your spouse, kids, etc.. in case you want them to use the same credit card.
  • Over-Limit fees: If you use your credit card and exceed the limit, some providers will decline that transaction, others will accept but charge you a fee.
  • Foreign currency fees: This is a slightly tricky one. For this let’s define two concepts. Home currency (your currency in Canada CAD), and Local currency (or the currency of the country you are in or buying from). The core difference in fees depends on where the currency conversion happens. Say for example you are in the U.S. and the U.S merchant gives you two options:
  • Option A : pay by U.S. dollars
  • Option B: Pay by your home currency Canadian dollars.
  • If you choose to pay by U.S. dollars, your credit card is charged in U.S. dollars and your Canadian credit card provider will handle the currency exchange. This is typically better and has lower rate (around 2.5% on top of the currency exchange rate). If you choose to pay by CAD on the other hand then the merchant’s credit card processor will do the currency exchange and the exchange rate fee is typically higher (3% to 7%)! on top of the exchange rate.
  • If you are buying something online then you don’t typically worry about this as you will almost always be paying by the local currency.
  • Convenience fees: Sometimes you walk into a convenience store and when you ask them whether they accept credit cards they will say yes but tell you there is an additional fee. This fee is charged to you by the merchant himself not by your card provider. Additionally you will see a notification on the terminal machine when such fee applies so you will not be surprised by it. There are no surprises here but keep this in mind especially if you are at a convenience stores and stores / merchants that sell cheap items.
  • Cash Advance fees: If you use your credit card to withdraw money from an ATM (Not recommended unless it is a super emergency), then there are cash advance fees ranging from 2 dollars to 5 dollars. These fees are ADDITIONAL to the Cash advance interest rate which is INSANE! (will cover this in the next post).
  • Account maintenance fee: “If you have an inactive Credit Card Account with a credit Balance that has not changed for 360 consecutive days, you will be charged a fee”. In other words; if you don’t use your credit card at least once within the year you will be charged a fee.
  • Statement copy fee: If you lost your credit card statement (assuming you do paper statements not e-statements), then you will pay a fee to get a copy. Don’t be a grandpa/grandma sign up for e-statements (online).
  • Convenience Cheque fees : Sometimes your nice credit card provider will send you empty cheques in the mail. Cheques associated to your credit card account that you can use to pay whatever you like. “How nice of them!” you think to yourself but the truth is this is SNEAKY!!! If you use these cheques there are fees associated to them, PLUS these cheques have higher interest rate than your normal card (Unless they are on a special promotional rate). My recommendation if you get such cheques is to toss them in the nearest garbage can! After tearing them of course since they have your credit card number on them!
  • Balance Transfer fee: Assuming (God forbid) that you carry a balance on your credit card (you don’t pay your statement in full), and you are moving to another credit card provider (assuming you are doing so because of interest rate) then you will be charged an additional fee which may be fixed or a percentage that you carry! Sometimes the alternative provider may pay this fee on your behalf but most of the time they don’t. You thought leaving is easy did you?
  • Dishonoured payment fee: Say for example you are a grandma and instead of paying your credit card statement (or balance) online you use a cheque and that cheque bounces. Then of course your credit card provider will do the most reasonable thing. They charge you a FEE!… simple isn’t it.

RTFM: There are plenty of additional fees that you MAY be charged so the best thing you can do when you get your credit card agreement is to RTFM (Read The Fucking Manual).

I’m going to actually generalize this as it is super important.

When you OPEN ANY type of account at any type of business or institution, or whenever you are given a legal document and you are asked to read it THEN READ IT. At least skim through it quickly and see if there is anything there.

ASK

This post has gotten too long already, so I will break this down into two. For the next post we will cover

  • Credit card Balance, Statements, Payments (minimum and full), Importance of On time Payment.
  • Chip & Pin and PayWave.
  • Interest rates calculation
  • Best Credit card recommendation.
  • Things you cannot do without a credit card.
  • Additional benefits of a credit card (Insurance, theft, etc.)
  • Yay! I have a credit card : Activate
  • overpaid your card! not a problem!
  • The Dark side : Identity theft, theft, lost stolen cards, fraudulent charges , charge backs. What you should do to handle such incidents.
  • WHAT these evil credit card companies are not TELLING you.
  • The DEBT SNOWBALL.

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Shoukri K.

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