Looking for a cash back credit card? Here are a few tips.
A majority of consumers (82%) shop for their credit cards through the loyalty program attached to the card, according to the Canadian Bankers Association. The problem is, people have a very poor understanding of how these programs work. Thus, 57% of Canadians do not know the balance of their accumulated points and 38% have no idea their value, according to Bond Brand Loyalty.
This is worrying because, thanks to various ploys employed by the firms behind the loyalty programs, the value of the points decreases over time. And their generosity varies greatly. In fact, your purchasing power is much less with points than with dollars, especially in virtual stores of loyalty programs, where prices are systematically blown.
You can get around these problems by betting on a cash back credit card. But these cards are not all created equal.
How to choose ?
The best way to choose a credit card is to use online comparators.
But, before you start, you need to establish some criteria. The one I prefer: a card with no annual fees, to avoid the discounts paying precisely these fees.
Your credit score also influences your choice: several financial institutions offer this service; otherwise Equifax and Trans Union allow it to be obtained free of charge by mail. A very good score is between 690 and 719, an excellent score exceeds 720. A majority of cards require 660 and more.
Use more than one comparator and scrutinize the details of each card before choosing. For example, the four comparators I used had different top positions.
What stands out: The best cards offer monthly or annual discounts ranging between 2% and 2.5%. But generosity often varies by category. Some merchant cards offer higher discounts (up to 4%, but the rate only applies at that retailer and the card’s interest rate is outrageously high, say 22.99%). Depending on the card, the discounts reduce the balance or are transferred to your bank account. Finally, some issuers require a minimum annual income.
- Before selecting a card, calculate all your expenses for the last year by category: some cards are more generous than others in certain categories (travel, gas, outings, payment of monthly bills, etc.). Choose a card according to your needs and priorities.
- Avoid sign-up offers (lower rates or higher discounts for the first six months).
- If you’re struggling to bring your balance down to zero each month, ditch the rewards – bet on a low rate card.
- Avoid making simultaneous card requests so as not to affect your credit score: if you are unsure, call the issuers for further explanations.