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Part 1: Starting with credit cards

To the point Many are lost with all the credit card offers that exist in Canada... Before analysing each loyalty program, let's begin by helping you to understand how credit cards work. You will deepen your knowledge of: credit card networks, card types, fees, benefits, credit report... and gain insight on which credit card to begin with!

Starting with credit cards

While some will say that this is common sense, a return to the basics will not hurt. We will take, as an example, the questions sometimes seen on the Facebook group or on other threads.

Let’s take the example of a recent post: it is not uncommon to read on Facebook “I own a World Elite, it’s the best”… which does not mean anything given the number of institutions that offer a World Elite card. The advantages and offers of cards vary from one bank to another… even for a similar product called World Elite!

If you prefer the video version here it is! If not, continue reading.

Credit card networks

There are three major networks on the market:

  • American Express
  • Mastercard
  • Visa

Each of these networks will grant banks licenses on their credit card brand products and give them a framework of regulations to comply with (minimum income required, fees, etc.).

Each network will offer banks different types of products:

amex logo

Credit cards
Charge cards
No minimum income required for most

mastercard logo

Mastercard (no minimum income)
World Mastercard ($60,000 individual or $100,000 household)
World Elite Mastercard ($80,000 individual or $150,000 household)

visa logo

Classic Visa / Gold / Platinum (no minimum income)
Visa Infinite ($60,000 individual or $100,000 household)
Visa Infinite Privilege ($200,000 household)

Each of these products has different basic features:

  • Minimum individual / household income required
  • Benefits
  • Insurance packages

It is then up to the banks to choose the products they want to offer to their customers.

Some banks will be able to offer cards from different networks (American Express, Mastercard, Visa).

Scotiabank, for example, is the only one to offer credit cards from all three networks!

Then each bank will be able to add:

  • welcome offers
  • benefits for card holders
  • additional insurance warranties

… to make their credit cards more attractive in comparison to their competitors’ cards, and to offer them to their (new) customers!

You now understand why it is really inaccurate to say:

“I have a World Elite.”

Rather, we will say:

“I have the BMO World Elite Mastercard”

The credit card is a “loss-leader” for a bank: it allows the bank to “attract” new customers from competing institutions!

Different types of cards on the market

A quick side note from the pharmacist in me. In a pharmacy, it is sometimes difficult for patients to navigate with all the drugs that exist on the market, each belonging to a specific class.

And two drugs may be in the same class but have different benefits and effects. For me, metaphorically, credit cards are somewhat similar!

You have to understand:

  • classification
  • benefits / perks

Several types of cards are on the market and belong to a class that can be subdivided into several subgroups.

Each credit card network (American Express, Mastercard, Visa) can offer different types of cards

The debit card

With a debit card, money is immediately taken from your checking account when you withdraw cash from an ATM or when you buy something.

The debit card will generally not offer any point-related benefits.

Mastercard and Visa have debit cards.

The credit card

There are credit cards for:

  • individuals
  • professionals, the self-employed, small businesses
  • corporations / large enterprise

The credit card is not linked to your checking account. This has the great benefit of allowing you to own credit cards from institutions other than your current bank / credit union.

The credit card has limit that is pre-set by the issuer and it allows you to defer payment in relation to the time of purchase.

The balance of a credit card can be carried over from month to month at the cost of a high interest rate.

In the travel hacking world, YOU MUST fully pay your credit card each month.

The charge card

Some institutions, such as American Express, issue charge cards.

The charge card is not linked to your checking account.

Its limit is unknown to the customer (only the issuer knows it) and it allows you to defer payment in relation to the time of purchase.

The charge card monthly balance MUST be entirely paid each month and cannot be carried forward with an interest rate.

The prepaid card

The three networks offer prepaid cards: you will load the amount you want on it and use in the same way you would use a debit card.

These card will be of little interest and only used, for example, to load money in a foreign currency for a trip. An example of a prepaid card is the BMO U.S. Dollar Mastercard.

We are solely interested in credit / charge cards. It is with these cards that you will be able to earn points and miles!

The different credit cards

There are more than 200 credit cards in Canada! No wonder you’re having a hard time finding your way around: That’s why milesopedia is here and provides you with a ranking of the best card offers!

The features differ for each of these cards and various perks such as the following exist:

  • a warranty when your card is stolen or lost
  • 24-hour customer service in the event of a stolen card, with emergency replacement of this card
  • travel assistance and insurance
  • personal assistance
  • concierge services

Amidst all the credit cards, several different types of cards exist. Here’s a short description so you can better differentiate them:

  • no-fee credit cards
  • student credit cards
  • credit cards with rewards (the ones we’ll be most interested in)
  • credit cards with balance transfers
  • secured credit cards
  • business credit cards
  • low-interest credit cards
  • guaranteed credit cards
  • unsecured credit cards

Our search engine can help you choose the right credit / charge card !

Credit card fees

Annual fees

Annual fees are very much part of the process of earning points and miles.

Too often, we see people stepping back from selecting cards based on this criteria. Unfortunately, they are often misled in doing so: it will be rare to see a card at no cost having a real advantange.

However, what we have to be most on the lookout for is promotions! Like when credit cards such as the BMO AIR MILES World Elite Mastercard have a first free year promotion!

We could divide the annual credit card fees into four types:

TYPE EXAMPLE AVERAGE COSTS
Basic card Visa Classic $0-$50
Standard card World Mastercard $50-$120
Premium card World Elite / Visa Infinite $120-150
High-end card Visa Infinite Privilege / American Express Platinum $399-$899

The most interesting cards will often be the “standard / premium / high-end” cards. Although these include an annual fee, the benefits (as well as the welcome bonus in the first year) gained more than offset the fees paid!

But it isn’t uncommon for a card without an annual fee to also have an interesting welcome bonus, such as the Best Western Rewards® Mastercard.

Costs related to purchases, withdrawals, transfers

Here, we will talk about the fees charged by your institution in situations such as:

All of these fees can usually be avoided with good credit card management and with a judicious choice in cards, such as cards with no foreign currency fees.

Interest costs

Points and miles collector are generally not know to have credit card interest charges!

Indeed, if you have unpaid balances on your credit cards, it is useless to start this “hobby” of loyalty programs: the interest fees paid will completely offset the profits gained by the credit cards.

It is therefore important to carefully pay your bills at the end of each period and to check that no payment has been forgotten. Interest could run over time if you don’t pay attention to it and compromise your budget or even your credit report.

Should you negotiate your annual fee?

When you watch TV commercials, read magazines, browse on the street or on the internet, it’s all the same: everyone wants to sell you a product. The one to make the sale will be the one with the best marketing argument, the best design, the best attracttion to the customer’s eye. How does one find their way through it all? What reference to use to compare the offers?

It is important for you to be aware of current offers in order to best negotiate when comes the time to pay the annual fee.

I recommend these articles:

To help you choose the right credit / charge card, use our search engine! It is possible to filter according to the annual fee!

The perks of credit cards

It would be unreal to detail all the perks of credit cards.

As we have seen above, each network has different advantages for its products. The banks then add their own “layer” of additional perks.

Options therefore vary deending on the type of card and the issuer(some will therefore be unavailable for some issuers).

However, we can summarise the broad outlines of these benefits in a few points.

Purchase protection

Three examples:

  • Extended Warranty: Double / Triple the retailer’s original manufacturer’s warranty for up to one year by paying for your purchases with an eligible card.
  • Price protection: If you find the same item at a lower price within 60 / 90 days of the purchase charge on your eligible card, you may be refunded the price difference.
  • Purchase protection: Get protection for most items you purchase with your eligible card if your item is damaged or stolen within 90 / 120 days of the purchase date.

Personal assistance

Two examples:

  • Concierge services: Get exclusive and personal assistance when booking dinners and tickets to activities, locating items that are difficult to find, buying and delivering gifts or gettting services for your company.
  • Hot line: Get assistance virtually anytime and anywhere for any questions regarding your card.

Personal protection

Two examples:

  • Zero Liability: Pay only for purchase charges that you have authorized on your card account. You are not responsible for unauthorized purchases.
  • The charge back procedure: It is possible to get a refund for a service / product that was not received and which was charged on the credit card.

Travel assistance

Two examples:

  • International service: Get help virtually anytime and anywhere, in the language of your choice. Use your credit card services to report the loss or theft of your card, to get an emergency replacement of your card or emergency cash advances, to find out where an ATM is, or to ask questions regarding your account.
  • Access to VIP lounges at airports: Depending on the credit card, you may have free / paid accesses to airport lounges.

Travel coverage: credit card insurance

There are many types insurance coverages:

  • Collision / Damage Insurance for car rentals: This insurance covers the costs of damage or theft of your rental vehicle if you use your eligible credit card to book and pay for the entire cost of the rental.
  • Accident and Medical Emergency Travel Insurance: This insurance protects you and your family in case of accidental death and dismemberment if you purchase your tickets using your credit card. For greater peace of mind while travelling, your credit card offers emergency medical coverage anywhere in the world for you, your spouse or dependent children travelling with either parent.
  • Travel Cancellation Insurance: This insurance protects you and your family in the event of lost, non-refundable or unused payments and deposits in the event that your travel is interrupted or cancelled, if you have purchased your tickets using your eligible credit card.
  • Baggage delay insurance:This insurance reimburses the purchase of basic personal or business items should the arrival of your checked baggage from a public carrier be delayed, if you have paid for the purchase of your tickets using an eligible credit card.
  • Damage or loss of luggage insurance: This insurance reimburses the repair or replacement of your registered suitcases or carry-on bags that have been damaged or lost by your public carrier, if you have paid the full cost of your tickets using your eligible credit card.
  • Hotel or motel burglary insurance:This insurance provides a refund for the loss of your personal belongings due to burglary in your hotel or motel room. Your stay at the hotel must have been paid in full by the means of an eligible credit card.

Insurance will differ greatly depending on the type of card and the issuer. Check all coverage options before applying for a card or going on a trip!

Special offers to cardholders

Some card will offer experiences and offers.

Some credit card holders will benefit from exceptional offers from high-end retailers, hotels and airlines.

To help you choose the right credit / payment card, use our search engine! It is possible to filter according to your personal or family income!

The credit report

When applying for a credit card, the card issuer will check your credit report and review your credit “score” which represents your current financial situation.

Two institutions will provide this information: Equifax and Transunion.

A credit history will compile information such as:

  • your current credit (mortgage, car loans…)
  • your employment history
  • your debts (such as late payments, bounced cheques, accounts transferred to a collection agency, judgments, bankruptcies, etc.)

It’s important to know that a credit card application will only have an impact on 10% of your total credit score rating.

80% of your credit score is based on:

  • your payment habits (35%)
  • your credit usage ratio (30%)
  • your credit history (15%)

You should know that information can be kept for six years in your file:

  • negative information (e.g. late payment) can affect your credit rating for many years
  • positive information will improve your credit rating over the long term (timely payments, multiple cards approved…).

To improve your score, we will always suggest that you pay your balances as soon as you can rather than wait until the end of your card billing cycle!

To conclude, credit card issuers want to know:

  • whether you’re a good or bad customer
  • if you have debts
  • if other institutions have (successfully) granted you credit

As you will understand, keeping a low profile is recommended if your score has been impacted. We learn to pay our debts and our bills before applying for a new credit card !

Conclusion

Congratulations! You now know the basics of credit cards!

Before beginning to earn and burn points and miles, discover Part 2 of the Beginner’s Guide: The Loyalty Programs.

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