HOW TO CHOOSE THE RIGHT CREDIT CARD FOR YOU

Use the calculator

I’ve got bad news: You need to learn how to choose the right credit card for yourself, because there’s no one magical “best card” that suits everyone.

But I’ve also got great news: With a tiny bit of comparison shopping, and a small amount of information about your priorities and your spending, you can find a credit card that offers the absolute best bang for your buck, and helps you get and do more of what you love for less money. 

Whether you’re reading this with a credit card already in your wallet, or you’re gearing up to choose your first card (exciting!) this guide has everything you need to know to make a strategic, informed choice about your next credit card.

When should you re-evaluate if you’ve got the right credit card?

There are two main times you should re-evaluate the cards you’ve got in your wallet: When something changes, and when nothing’s changed in far too long.

Let’s start with “something changes”.

Here’s a list of potential changes that might be a sign you need to seriously look at whether your credit card is the best fit for you right now.

  • If your income has gone up (or down!)
  • If your spending has gone up (or down!)
  • If your spending patterns change (i.e. fewer bars, more home renos, for example)
  • If you’ve got travel coming up (for work or play!)
  • If you’re entering a new life phase (i.e. homeownership, going back to school, merging finances, having a baby, etc.)

All of these things could impact how much you spend, on what, and which types of rewards matter the most to you – which are the underlying factors that can help make or break whether a specific credit card is the right fit for your life.

And by “right fit,” I mean the one that will earn you the most rewards or cash, with the right amount of fees, and that charges the right amount of interest for your situation.

(Note: I never recommend carrying a balance on a credit card, but if you’re in that situation, the interest rate on your card should be top of mind while you’re in debt-payoff mode. Before you do anything tactical to manage your debt though, like signing up for a balance transfer credit card, I highly recommend reading Living Debt-Free by Shannon Lee Simmons to get a holistic view of how to pay down debt effectively, and when those tactics make sense.)

And if none of those things have happened in a while for you, let’s take you finding this article as a sign that it still might be time to check in on your credit card situation.

It’s far too easy to get stuck in a “this is the way things are” mentality with financial products, and if you haven’t switched up or compared your credit cards in a while, you might be surprised to realize you’re sitting on a card that isn’t a good fit for where your life is these days. 

How to choose the right credit card

There are five key things you need to know before you sit down to evaluate your credit cards, or look for new ones if that’s the best option: what you want in a card, your income, your credit score, your spending patterns, and your banking preferences.

1. Know what you want in a credit card

First and foremost, what matters most to you in a credit card? Here are some of the perks that credit cards can offer:

  • Travel rewards (like Westjet Rewards)
  • Loyalty program rewards (like Scene and PC Optimum Points)
  • Travel insurance (like trip cancellation policies)
  • Purchase protection insurance and extended warranties
  • Concierge services
  • Low interest rates
  • Cash back
  • Low or no annual fees

Assuming you can only get a few of those things, pick two or three that are the most appealing to you based on your goals and your life.

If you’re a frequent traveller, travel insurance and rewards might top your list, and they might also more than make up for an annual fee. On the other hand, if you’re focused on saving money and you don’t spend all that much, a no-annual-fee card that offers cash back on regular purchases might be the best credit card for you.

2. Know your income

After selecting the credit card perks that you’re most interested in, the next step in choosing the right credit card for you is to know your income—both your personal and your household income. 

Many credit cards use your current income as a factor in determining if you’ll be approved for their card. It’s a key piece of information to know before you choose and apply for a card, because opening a new credit card creates a “hard pull” on your credit report. It won’t impact your score too much, or cause a lasting impact, but it is smart to avoid it if you know you won’t be approved for the card based on your income.

3. Your credit score

There’s a lot to be said about credit scores, what they mean, and how they’re determined, but that’s another guide entirely. To get a new credit card, you don’t necessarily need to know how your credit score works (although it’s a great thing to know) but you do need to know what it is.

Many cards, especially premium cards that offer premium rewards, will have recommended credit score cutoffs. In the same way that you’re not likely to get approved for a card if your income is far below their income recommendations, you’re unlikely to get approved for a card if they ask for credit scores over a certain threshold that you don’t meet.

To find out your score in Canada, you can sign up to get it for free from Borrowell, and they’ll update you regularly with your new score—again, for free!

4. Understand your spending on credit cards

Lastly, this is by far the most important factor: You need a solid understanding of your spending in order to choose the right credit card for you. Specifically, you need to know how much you’ll spend, roughly, every month on your credit card in order to judge whether a card’s rewards programs and offers are really the best bang for your buck. 

Take a look at your past few months of spending to estimate what you spend monthly in each of these categories, which are commonly used to offer credit card rewards:

  • Groceries
  • Gas
  • Restaurants
  • Bills
  • Travel
  • Entertainment
  • Pharmacy
  • Other

This is one of the most important factors in choosing the right credit card, because your rewards can vary significantly based on which categories you spend the most money in.

If you’re spending most of your money on grocery and gas, you’ll want to look for a card that offers preferential rewards on that spending, like a higher cash-back rate or additional reward points.

Alternatively, if you mostly pay for meals out, movies, and other entertainment on your credit card, you may not care about good rates on gas and groceries—and you can likely find a card that rewards the spending you’re doing instead.

5. Consider your banking preferences

While it’s not top of mind for everyone, there are some perks to having a credit card with the same financial institution you do your everyday banking with. Mainly, when you send a payment to your credit card from your chequing account, you’ll likely be able to see updated numbers on your credit card much faster if they’re at the same institution. If keeping everything in one place is important to you, make sure to filter any research you’re doing so that you’re only looking at cards with your financial institution.

Note: This approach can significantly limit some of the sign-up bonuses and perks you’re eligible for, but the ease of use may be important to you, and that’s OK! I’ve used both approaches, and continue to use both across multiple cards. Personal finance is personal.

6. Use a credit card calculator

With so many credit card options out there, it’s always best to compare multiple cards based on the data you now have about your preferences and your spending. While I’m always happy to share the cards that work for me, I always follow it up with a disclaimer that it only works best based on my personal situation—and I direct people to this calculator to compare options based on their own spending.

If you do sign up for a credit card through that calculator, I may earn a small affiliate commission at no cost to you—but now that you know exactly how to choose the right card based on your own personal situation, I think we can both be really happy about the outcome!

7. Re-evaluate your credit cards as needed

Now we’ve come full circle, because I’m about to suggest you go back to step one as needed. After going through this process, you’ll be confident that you have the cards that best suit your life right now—but in a few years, your life and your spending might be totally different.

That’s why “the right credit card for you” might have shifted over that time, and why this is an ongoing process. Optimizing your cards can result in big benefits in the form of things like cash back, reduced travel costs, and more of the things you like for less money, which is why it’s so important to check in every few years. 

If you’re spending responsibly on your cards, and you’re going to be spending either way, might as well get the most benefits per dollar, right? The only way to do that is to really look at the factors listed here, and make sure that your card is the most powerful one for you.