Debates about credit cards sometimes ignite discussions in social networks and on the milesopedia facebook group.
Mostly to warn against the dangers of over-consumption and debt that threaten their users. Did you know that over 70% of Canadians pay their credit card balances in full each month?
What if the world of credit cards wasn’t just about stories that end badly? What if there were benefits to expanding our financial literacy, thereby debunking the myths associated with the credit card world? Let’s go assess our knowledge.
Warning: this story may have a happy ending.
Myth 1: Credit card payments put us at risk of fraud
It is true that fraudsters and banking institutions are engaged in trench warfare over chip, magnetic stripe and online ordering transactions. These require our security code and make us particularly vulnerable.
But the advantage of a credit card is that we can regularly track transactions in our online account and notify our bank as soon as we don’t recognize an expense.
And even if we don’t usually check our account before the monthly statement is issued, the bank itself may detect a fraudulent transaction and contact us.
The financial institution then cancels the card before issuing us a new one, and does not charge us for the fraudulent transaction.
In any case, we are not responsible for fraudulent transactions!
Myth 2: Credit cards encourage impulsive and irresponsible behaviour
Do credit cards have this power over humans? If we are impulsive and irresponsible by nature, it is indeed better to work on these behaviours before applying for credit cards.
Moreover, this extends to all spheres of our lives, not only to our relationship with money. Instead, getting credit cards gives us the opportunity:
- to manage our money well by paying the full amount on the statement each month,
- to discover what we spend on the most (where is our money going?),
- to respect the credit limit granted by the lender.
Myth 3: Having more than one credit card lowers your credit score
This myth is quite popular. First, you should know that the credit score is established from several factors :
- The punctuality
- The use
- The history
- The types of credit
- New applications
The two factors that are impacted when opening a new credit card are our credit history (i.e. the number of years we have been part of the credit world). When adding a new card, the credit age will be lowered. But this factor only accounts for 15% of our rating and the drop of a few points will quickly be made up for.
The same is true for the “new applications” factor: this only accounts for 10% of the credit score.
A missed payment would have had a much greater impact (35% of the score), same goes for when you use too much of the credit granted (30% of the score).
The benefits of having multiple credit cards and being a good payer boil down to this:
- the possibility to optimizie our profits according to the type of purchase,
- the opportunity to earn different types of rewards based on our needs (points for travel, cash back, etc.),
- prove to lenders that they are right to grant our credit applications because our credit record is in good shape.
Myth 4: Paying an annual fee for a credit card is like throwing your money away
First, there are several no-annual-fee credit cards that have good benefits such as insurance and opportunities to optimize certain expenses. Why deprive ourselves of it?
Then there are those with monthly or annual fees. Let’s get out our calculators.
Is it worth paying $120 a year to get a 5% return on our groceries?
If I spend, for example, $100/week on food, which is not much in 2021, that’s still a return of $260 annually, and that’s not counting the other benefits of the credit card, such as the American Express Cobalt™ Card, the BMO® CashBack® World Elite®* Mastercard®* or the Scotiabank Gold American Express® Card.
Is $139 worth the price of the free ticket I get for a round-trip flight to Hawaii (especially when the first year is free like with the TD® Aeroplan® Visa Infinite* Card?
Is $150 a lot to pay for a credit card like the National Bank’s World Elite Mastercard® that offers you up to $250 in reimbursed travel expenses per year, the best insurance on the market (up to 60 days of travel insurance and up to 3 years of extended warranty), unlimited access to the National Bank Lounge in Montreal for you, an additional traveller and up to 2 children, and up to 2 points per dollar including at Costco?
Or the $149 charged by a credit card like HSBC World EliteMD MastercardMD that offers $100 in travel credit each year and charges no conversion fee for your foreign currency transactions (a 2.5% savings on every purchase)!
Anyway, I’ll leave you to think about it. Start from your needs and compare offers with the milesopedia comparison tool.
Myth 5: The best credit card rewards are cash back
Different needs, different solutions. Cash back is very popular with people who want to save on their expenses.
For example, in these times of home renovations, it is particularly interesting to be able to reinvest this money in new purchases.
That’s why we see many of our members taking advantage of the current welcome offers from several credit cards offering 10% cash back in the first few months.
However, many people prefer cards that will allow them to earn travel rewards to save on:
- accommodation (hotels, Airbnb),
- transportation (plane, train, car rental)
- activities (e.g. Disney passes).
Let’s take time to define our needs, our projects, and our dreams with a strategy. Let’s match it with the best rewards program and associated credit cards to help us achieve it.
And let’s stick to credible readings to debunk the myths.
Myth 6: American Express cards are not accepted in Quebec or Canada
The American Express cards are so advantageous either during the welcome bonus or the offers during the year that you don’t want to do without them.
By the way, very few members of the milesopedia community don’t already have the American Express Cobalt™ Card which offers 5 times the points for everyday expenses like groceries, meals or at convenience stores (think of the gift cards😉 ).
Myth 7: Stick to the credit cards offered by your institution
I never thought I’d advocate infidelity, but in this case, yes, I do. That is, if you are serious about growing your assets. Banking institutions want our business and compete with each other to attract us. Let’s take advantage of it according to our needs.
My bank simply did not offer this type of product. Many people do not know how to pay for a credit card account when their bank account is with another institution. It’s very simple: under your bank’s tab, “Pay your accounts”, you just have to enter the name of the credit card and its number, as you would do for Hydro-Quebec, you put in the amount and press Pay. That’s it.
Credit cards pros and cons
- The staggering amount of interest you have to pay when you don’t pay your monthly statement balance in full,
- the time it takes to keep track of our expenses and payments.
So, what about those myths? If you pay off your credit card balance every month, refusing to pay any interest, you are a good candidate to own more than one card. They offer rewards, insurance, and promotions that you don’t want to miss.
Did you know that in 2020, I flew to South Africa in business class for less than $200, and paid for the rest with credit card points? See how well the story ends…