Types of Credit Cards in Canada

The average Canadian has an abundance of credit card options available at their disposal.

In fact, there are so many that it can be overwhelming to understand the differences between them, not to mention selecting the one that’s best suited for your needs.

For this reason, a wise first step is to group credit cards into broad categories to better understand their functions, features, and benefits.

Let’s dig in and have a look at the main types of credit cards.

1. Unsecured Credit Cards

Unsecured credit cards are the most common type of credit card you’ll encounter.

This category encompasses a plethora of cards, each with varying fee structures, annual percentage rates (APR), rewards programs, perks, etc.

To acquire an unsecured credit card, you typically need to have a credit score of at least 650, which is considered a good credit score.

Credit card providers will review your credit report to assess the risk of extending credit to you.

If your credit score is poor, or you lack one entirely, you’ll find it challenging to get approved for an unsecured credit card.

If you possess a solid credit score (along with a reliable income), you’re likely spoiled for choice when it comes to credit cards.

You can easily obtain access to premium cards, which offer lavish perks and lucrative rewards programs.

Still, if you have a modest credit score and income, there’s an ample supply of plain, no-frills unsecured cards for you to choose from.

These typically come with no annual fee or rewards programs, making them an ideal credit product for new borrowers or those who value simplicity and frugality.

Keeping up with your payments is a crucial aspect of credit card management.

You must pay at least the minimum amount required in each billing cycle, which spans a month, give or take a day or two, for your payment to be deemed on time.

Failure to do so will result in an impairment to your credit score and interest charges being levied. 

Did You Know?

Only credit card payments late by more than 30 days negatively affect your credit score.

2. Secured Credit Cards

A secured credit card may seem like a regular, plain-vanilla credit card most people carry in their wallets.

And it is, but with one exception: before the card issuer grants you the authority to use it, you must deposit a lump sum of money upfront as collateral.

The collateral acts as security for the card issuer in case you fail to make your payments.

Should you default on your payment obligations, they can seize your deposit to cover the outstanding card balance.

In this sense, a secured credit card functions like a secured personal loan backed by an asset, which the lender can liquidate to cover an unpaid balance.

Unlike an unsecured card, the credit limit on a secured card is usually restricted to your deposit amount.

As a result, a secured card isn’t ideal if you need a significant amount of credit.

Secured credit cards are geared toward those wishing to establish or repair their credit score.

As with unsecured credit cards, lenders report timely payments to credit bureaus, allowing borrowers to cultivate a positive credit history.

The APRs that secured credit cards charge can be steep (above 19.99%), which is one of their downsides.

You may also have to pay a setup fee to open your account.

Once you’re ready to upgrade to an unsecured credit card (typically after 12 – 18 months), you can notify your lender that you wish to close your account.

At this point, you can retrieve your deposit.

An example of a secured credit card is the Refresh Credit Building Secured Card offered by Refresh Financial.

3. Charge Cards

A charge card works like a standard unsecured credit card except that you must pay the outstanding balance in full by the due date.

No minimum payments are allowed like they are on unsecured cards.

Should you fail to pay off the balance, you face hefty interest charges and late fees.

Charge cards also generally come with an uncapped spending limit, meaning you can charge as many purchases to them as you like.

In reality, however, the lender approves your charges based on your spending profile, credit report, income, and other financial attributes.

Card issuers won’t simply let you splurge all you want!

Charge cards are suitable credit tools for those who routinely use their cards and have a steady income stream to pay off the balance each period.

Most come with prohibitively expensive annual fees, which may be hard to justify for those on a tight budget.

In Canada, charge cards are rare compared to unsecured credit cards.

The primary distributor of charge cards in the country is American Express.

Fun Fact

The most challenging credit card to get approved for in Canada is the Centurion Card from American Express – it’s rumoured that you need to charge between $250,000 and $1 million annually on an AMEX card to qualify!

4. Prepaid Credit Cards

A prepaid credit card is not technically a credit card – your purchases aren’t financed by funds originating from a card issuer.

Instead, you supply the money yourself by topping it up with funds directly from your bank account.

Once you’ve loaded a prepaid card with cash, you can then use it like any regular credit card. 

Naturally, your prepaid card’s spending power is limited by the amount of money its account holds.

If you reach your limit, you won’t be able to use it again until you replenish it with fresh cash.

Prepaid credit cards are helpful for those with a low credit score, as securing approval for one is relatively easy and convenient.

No collateral is required, as with a secured credit card.

They’re also invaluable as budgeting tools, helping to impose financial discipline and curb overspending.

Two popular prepaid credit cards in Canada are Koho Visa and Mogo Visa Platinum.

Unsecured Secured Charge Prepaid
Deposit required? No Yes No No
Credit limit Varies. Based on card holder’s credit score and income. Varies. But typically, equivalent to the size of the deposit. Varies based on card holder’s credit score and income. Limited to the funds the cardholder loads onto the card.
Good for credit building? Yes. Timely payments are reported to credit bureaus. Yes. Timely payments are reported to credit bureaus. Yes. Timely payments are reported to credit bureaus. No, payments are not reported to credit bureaus.
Rewards/cashback program Yes, but not all cards offer one. No Yes, but not all cards offer one. Yes, limited to cash back usually.
Annual fee Yes, but $0 annual fee cards are also available. Yes, but $0 annual fee cards are also available. Yes (normally higher than unsecured cards). Yes, but $0 annual fee cards are also available

5. Travel / Rewards Credit Cards

A rewards credit card allows you to collect points for every dollar you spend, which you can then redeem for various rewards, such as gift cards and merchandise.

Some rewards cards are geared towards travel, offering you the ability to convert your points to cover the cost of airfare, accommodation, car rentals, vacation packages, etc.

Travel rewards cards also provide various perks, such as airport lounge access, travel insurance, flight upgrades, and concierge services.

A credit card’s rewards program is generally structured in one of two ways: flat-rate and tiered.

Under a flat-rate model, your points-earning rate is consistent for every purchase you make.

Conversely, the number of points you earn varies by spending categories, such as groceries, fuel, and travel, under a tiered model.

While plenty of travel/rewards cards come with no annual fee, these usually provide less value in perks and points redemption opportunities.

You’ll have to pay a steep yearly fee to have access to the most lucrative cards.

Some well-known rewards programs in Canada are Air Miles, Aeroplan, CIBC Aventura, and RBC Avion Rewards. 

Travel/rewards credit cards are primarily unsecured cards, though certain charge cards also come with rewards programs. 

Did You Know?

Credit card points generally provide the most value when redeemed for travel-related rewards, not statement credits or merchandise.

6. Cash back Credit Cards

A cash back credit card reimburses you in cash for a portion of the shopping you do with it.

The amount you earn depends on the card’s policy, which typically ranges from 1% – 3%.

Once you accumulate enough cashback, you can convert it to a statement credit or have the funds deposited into your bank account. 

Cashback cards operate under one of three models:

i. Flat-rate – you earn the same rate on every purchase

ii. Bonus-category – you earn a flat rate on all purchases, plus a bonus rate for certain spending categories like gas and groceries

iii. Rotating-category – you earn a flat rate on all purchases, plus a bonus rate that applies to different spending categories throughout the year.

Cashback credit cards are usually unsecured, but many prepaid cards offer a cashback program, as well.

7. Balance Transfer Credit Cards

A balance transfer credit card provides you with a low or zero-percent interest rate on the debt you transfer to it from another credit card.

It’s an excellent option for consolidating your existing credit card debt at a favourable rate, allowing you to realize substantial savings on interest charges.

Though a low or zero-percent interest rate is enticing, bear in mind that it only lasts for a short period of time – typically six months to a year.

Once this discounted period ends, the balance transfer card’s default rates take over, which can be exceedingly high.

As a result, you should aim to pay off your principal as quickly as possible.

Balance transfer cards come with fees that range from 1% – 4%, which you should consider before applying for one.

The amount you can transfer is restricted by the credit limit assigned to you by the card issuer, so you may be unable to move the entire balance from your current card.

Like most credit cards, balance transfer cards are unsecured.

8. Business Credit Cards

As the name implies, a business credit card is intended for business-oriented activities, such as purchasing inventory or office supplies.

It’s not meant for personal use, but you can still qualify for one if you don’t operate a business.

Business credit cards are relatively easy to get approved for and are flexible and convenient tools for companies of almost any size.

They’re helpful for tracking expenses, freeing up cash flow, and injecting emergency credit when needed.

Most also come with a rewards program and offer travel-oriented perks customized to meet businesses’ needs rather than individuals.

Business credit cards can be classified as charge, secured, or unsecured.

9. Student Credit Cards

A student credit card is designed for young people with a limited credit history and little income.

If used wisely, they’re a valuable way to build up a credit profile and become familiar with managing debt.

The qualification criteria for a student credit card are easy to satisfy.

Most don’t carry annual fees, making them a convenient and cost-effective financing tool.

Being enrolled in a post-secondary institution helps to get approved for one.

Like regular rewards cards, student cards may have their own rewards program, usually in the form of cashback.

However, some allow you to collect miles, as well.

Both unsecured and prepaid student credit cards are available.

10. Store Credit Cards

Various retail firms distribute store credit cards to allow customers to finance the shopping they do in their establishments.

They function in the same manner as a standard credit card, except that you can only use them at stores associated with the retailer that issued them.

These are known as closed-loop cards, easily identifiable because they contain the retailer’s logo.

This is not always the case though – some retailers offer store branded credit cards that can be used anywhere.

Store credit cards are relatively easy to acquire as they have less stringent qualification criteria than other types of credit cards.

Many also eschew the annual fee, offer discounts on store purchases, and allow you to collect and redeem rewards points.

However, they usually charge higher interest rates and provide low credit limits.

Store credit cards are unsecured credit products.

Fun Fact

Canadian Tire’s Triangle Mastercard is one of the few credit cards in Canada that you can use to pay for things like utility bills, property taxes, and tuition fees – and collect rewards points in the process.

Woman exploring all types of credit cards
Mark Gregorski

Mark is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.