Low Interest vs. Rewards: What’s Best for Your First Card

Choosing the right credit card is a big step on your credit-building journey. The card you select can help you establish your credit history and assist you in achieving your short and long-term financial goals.  

But with so many options, how do you know what to look for in your first credit card? Should you focus on earning rewards like points or cash back? Or should you look for a card that offers the lowest interest rate? 

Here are some of the main factors to consider when selecting your first Canadian credit card.  

Do you need to carry a balance? 

Your credit card balance is the amount you owe on your credit card. While it’s best to pay off your balance in full every month, sometimes that’s not possible. Perhaps you have a big expense you need to pay off over time, or your income falls short for a while. Credit cards make it convenient to carry a balance when you need to — you just have to make the minimum required payment. However, you’ll be charged interest on your remaining balance every month until you pay it off. Over time, those interest charges can add up.  

If you anticipate carrying a balance, you may prioritize a credit card with a lower interest rate to help you manage your finances and avoid high costs. When you carry a balance with a rewards card, the interest charges may cancel out the value of your rewards.  

How much would you benefit from rewards? 

Rewards credit cards for individuals may not always offer a low interest rate, but they can provide other financial benefits instead. Depending on the rewards your card offers, you might get cash back on certain purchases, miles you can use to offset travel expenses or discounts on purchases you make through your credit card provider’s rewards portal. But before you commit to a rewards credit card, think about whether the rewards make sense for your lifestyle. If you don’t drive much, for example, a card that offers cash back on gas purchases isn’t going to do a lot for you. If you travel a lot, however, a card that lets you earn miles might offer a lot of value.  

If you can’t find a card that offers rewards you’ll actually use, a low-interest credit card might work better for you instead.  

Are you willing to pay annual fees? 

Some Canadian credit cards charge an annual fee regardless of whether you use your card. In many cases, cards with an annual fee offer higher rewards, travel perks, lower interest rates or other benefits. If the annual fee is too high, though, it can offset your rewards or savings and may not be worth the cost.  

However, some credit card issuers will waive the annual fee for the first year. There are also cards with no annual fee designed for beginners and those looking to build their credit. Cards with no annual fee are also a great option for anyone looking to avoid extra costs.   

What cards are you eligible for? 

When you apply for a credit card, lenders look at your credit score and income to determine how likely you are to pay your bill and how much credit you might be able to handle. A high credit score and reliable income make it easier to get approved for a credit card and may help you secure better terms.  

If you’re just starting your credit journey, however, you won’t have a credit score. There are credit cards designed for beginners, including student cards and secured credit cards. These cards don’t require a credit score, and some offer an opportunity to earn rewards. When considering your options, be sure to weigh the benefits of a lower interest rate against the added value of rewards.  

Match your first card to your unique financial needs 

When you’re looking for your first credit card, consider your financial priorities. If you think you’ll carry a balance, opt for a card with a low interest rate. If you plan to pay your balance each month, you may consider a card offering a rewards program. 

Understanding how you plan to use your credit card and which benefits will be most useful for your lifestyle can help you choose a Canadian credit card that’s right for you. 

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