Note: This is a guest post written by Mike who is the founder of the deal and review site CreditCardForum.com. It’s a social community for talking about all things related to credit cards, both the good and bad that come with them.
As someone who runs a forum about credit cards, I see a lot of questions from both sides of the border asking about the similarities and differences between using Canadian and U.S. credit cards and how they affect a credit score. Some questions are asked by visitors, others by those who are moving from one country to the other. Whatever the case may be, I thought it might be helpful to write up a comparison and contrast for Finance Fox. The next time I get asked these questions, I can just send ‘em over here to read this!
1. Beware of the foreign transaction fees
Whatever side you’re coming form, something to keep in mind is that most credit cards charge a foreign transaction fee for using your card outside your home country. This surcharge is usually 2% to 3% of whatever the purchase price may be. Currently I am not aware of any Canadian-issued cards that have no foreign transaction fee. The lowest that I know of are the Desjardins Visa cards, which have a 1.8% surcharge (slightly better than the 2.2% to 2.5% most others charge). For Americans, there are a number of rewards cards with no foreign transaction fee but unfortunately, they usually carry an annual fee.
2. The acceptance of Discover cards
In the US, Discover credit cards are very mainstream. In fact, they are now accepted at 90% of retailers who also take Visa/MasterCard. However as Canadians already know, places which take them are few and far between there. I have heard of some U.S. chain stores like Sears accepting them, but aside from those, the only places which tend to accept Discover in Canada are those which are geared towards tourists.
3. The acceptance of American Express
If you’re a Canadian AmEx cardholder, when you come across the border your card will be accepted almost everywhere. On the flipside, Americans need to realize their acceptance there will be far less. Although I could not locate any “official” acceptance numbers, forum members have said it feels to be about 50% the acceptance rate of Visa and MasterCard.
4. Canadian AmEx cards are sometimes better
Being that “American” is in the name American Express, you would think the best deals would be in their home turf. However surprisingly, that’s not always the case. Some Canadian AmEx cards are better than their U.S. counterparts. My guess is that American Express must feel compelled to sweeten the pot since their cards aren’t as widely accepted.
5. U.S. credit card rewards are more generous overall
With the exception of AmEx mentioned above, more often than not, the best credit card deals are found in the U.S. (if it’s rewards you are after). To be honest, Americans such as myself are quite spoiled because we have come to expect 2% to 5% cash back as the norm and folks on my forum scoff at anything less. Whenever I’ve looked at cards from across the border, many usually give only 0.5% to 1.0% cash back.
6. Annual fees are more common in Canada
Generally speaking, the only cards in the U.S. which charge a fee are those which offer premium rewards or cater to people with bad credit. Everything else usually has no annual fee. Interestingly enough, the whole no annual fee trend was originally started by Discover in the 80’s, when they launched one of the first no annual fee cards (the rest of the banking industry couldn’t believe they were giving them away for free). It would be great to see Discover expand across the border and put the same pressure on competitors there to do the same!
7. Interest rates are much lower in the U.S.
It’s no wonder us Americans have such big problems with debt! The average cardholder receives balance transfer checks in the mail – sometimes several per month – that give 0% interest for 12 to 24 months on average. They can be used up to whatever the account’s credit line is. Although these checks are meant to be used for balance transfers, most can be made payable to anyone, including yourself! As you can imagine, this leads to massive binging on credit. Personally, I think the way Canadians do it by having higher APRs and taking it easy on the promotional rates is a better and much more responsible approach (it discourages debt). No wonder Eddie is so committed now paying the $9,000 debt.
8. Some Americans pay for everything with cards
Practically everywhere accepts cards for payment. So much that many people (myself included) can go for several months without ever using cash or coins. You will see us use credit cards to pay for everything from a pack of gum to our federal income taxes . Other unexpected examples include paying for cars, funerals, and even buying cocaine with a credit card, like <a this man allegedly attempted. While such wide acceptance may be a convenience if you pay your bill in full every month, it’s a bad temptation for those who have a tendency to spend more with plastic.
9. Both countries use FICO and the same credit agencies
FICO is the dominant credit score formula in both places. In the US, Experian, Equifax, and TransUnion are the main bureaus. In Canada, it’s the latter two. However the divisions in each country operate independently, so your credit history generally won’t follow you. That’s not to say your mistakes in one country can’t come back to haunt if you move to another. If you had delinquent debts in Canada and plan on moving to the United States, be aware that the Canadian creditor can enter in a contract with a U.S. based collection agency to attempt collection. If that happens, then the collection agency might be able to report your foreign debt on your U.S. credit record.
10. Canada beats U.S. in the number of credit cards per person
According to Euromonitor International, in Canada there are 72 million credit cards in circulation (as of Jan 2010, which is the most current data I could find). With a population of around 34 million, that averages out to be 2.11 cards per person (note that the average is closer to 3 if you only count card users vs. the entire population). In the U.S. there are reportedly around 631 million credit cards in circulation. With a population of around 312 million, that equals out to be 2.02 per person on average. Conclusion? Canadians have slightly more cards, on average, per person. I was actually surprised to see this when I calculated it out, because you would think Americans would have more, given how addicted to credit we are!