The Differences Between American and Canadian Credit Cards

With one of the largest retail stores in the United States starting to open it’s first stores in Canada this week, I thought it would be interesting to look at the difference between American and Canadian credit cards.

You may think that all credits cards – both in the United States and Canada – are very similar, if not the same.  I mean a credit card is a credit card, right?  But, in fact, our neighbors to the north have some key differences when it comes to their cards.

The Similarities with Canadian Credit Cards

First, you should understand that Canadian credit cards are very similar to American credit cards.  For starters, the way they work is exactly the same – you pay with your credit card at the store or restaurant, you have a grace period before payment is due, and the credit card has an interest rate that is billed for any balance carried past the grace period.

Also, just like in the United States, Canadian credit card companies rely on credit scores to assess your credit-worthiness.  In fact, the same companies that operate in the United States – Experian, Transunion, and Equifax, are the same companies in Canada.  You should note, though, that these companies operate independently in both countries, so while it’s the same company calculating your credit score, your credit history may not transfer from country to country.

Remember, you should always be focusing on your credit score. We love Credit Karma for this.

The Key Differences with Canadian Credit Cards

However, while the basics of how credit cards operate in Canada is the same as it is in the United States, there are several customary differences between the two countries.

Canadian Credit Card Rewards

First, Canadian credit card rewards programs are typically much less generous than in the United States.  In Canada, the best rewards programs typically only yield 0.50% to 1.00% cash back (or cash back equivalent  rewards.  In the United States, it’s not common to see rewards programs on credit cards up to 5% on certain transactions.

You may think that it could be worthwhile to get an American credit card for use in Canada just for the rewards, but you should remember that pretty much every credit card has a foreign transaction fee of 1-3%, which would essentially eat away any rewards you earn.

Annual Fees

Second, annual fees are very common in Canada.  While becoming less and less prevalent, they are still much more common that in the United States.  And annual fees don’t just apply to rewards cards in Canada – many credit cards issued by local banks also carry annual fees and many not even have rewards programs.

Interest Rates

Next, interest rates on credit cards in Canada is typically much higher than in the United States.  Looking at some of the best credit cards in Canada, I noticed that the typical APR was anywhere from 19.99% to 30%.  While there were some as low as 16.99%, these were the cards that had higher annual fees than the other cards.  If you look at the lowest interest rate credit cards in the United States, you typically find a lot of cards with 0% APRs for at least a year, and non-promotional APRs around 8% to 12%.

Cross Border Rules

As a final note, I want to touch on cross-border rules for credit cards.  Let’s say you have a credit card issued in the United States and you are in Canada.  The same rules don’t necessarily apply to your credit card in Canada as they would in the United States, and vice versa.

A prime example are rewards cards.  If you have an American Express rewards card issued in the United States, there are some rewards that you cannot redeem in Canada.  The opposite is also true – if you have  an American Express card issued in Canada, you can’t redeem some of your rewards in the United States.

The reason is the location of the issuing bank.  All credit cards are issued by an underlying bank, and they will only issue rewards in the country they are located.  So, even if you have the “same card”, being in different countries makes a difference.

Canadian friends, am I missing any other key differences between American and Canadian credit cards?

Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.