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?
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The biggest disappointment is no doubt the rewards. I spent a few years living in the US and being able to take advantage of the HUGE air mile bonuses on new cards is such a fantastic thing. You can still collect miles as a Canadian resident as well if applying for new cards and doing a few little tricks, but I would say that over the course of a year you would probably only be able to get 1/10th the miles a US resident can.
This is just a single data point based on our experience, but I found banks much stingier in approving credit cards in Canada. We moved to Canada from the States in 2009. I applied for a credit card through Scotiabank. First, I learned our stellar, but all US, credit report meant nothing–we had to start over building credit, in Canada. Also the bank didn’t like that my job was “temporary”–I worked under contract at the time with a fixed (but fairly distant) end point. My CC application was turned down. I got a little incensed since we had quite a pile of cash in the bank, we owned Scotiabank stock, and I kept getting cold calls from Scotiabank’s ‘investment advisor’ who of course wanted me to put the cash to work by investing in Scotiabank products! Eventually after threatening with the branch manager to take our business elsewhere I was granted a $5000 limit credit card. In the US, seems any 18-year old kid can get a credit card.
We may not have the best reward programs which does suck if you are responsible about paying your card off every month but it works well to deter people who can’t be responsible from using them. With higher interest rates we stop people from getting into serious debt, or at least deters them.
I’m sure that there are people who think they’re clever getting an American credit card while in Canada, totally forgetting the foreign transaction fee….ouch!