- Learn how to calculate the value of your credit card points to understand your loyalty rewards fully.
- Eligibility requirements for top-tier rewards cards out of reach? Consider applying with your household income.
- Credit card hack: if a payment network isn’t accepted at a retail store, try paying with the same card using a mobile wallet instead.
Without a doubt, the best way to benefit from a credit card is to pay off your balance in full every month and find a rewards card that fits your lifestyle and spending behaviour.
Finding the best rewards credit card can be challenging with hundreds of possibilities, over a dozen issuers, three payment networks, several reward programs, and endless benefits and perks — each tailored to unique spending profiles.
Follow these 10 simple steps to understand your spending habits and ensure you find the best rewards credit card to complement your lifestyle.
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1. Track your monthly spending
Review your financial statements each month to understand your spending habits better. Start by creating a budget, recording the amount of money you spend on average, the types of purchases you make, and the payment method you use. Pay attention to the spending categories credit cards regularly reward cardholders for, like gas, groceries and travel; it could help you earn rewards faster.
This breakdown may reveal a few facts about your spending that could help you maximize your rewards:
- Total monthly spending: While you may spend a certain amount each month, you should pay close attention to the payment method you use. A credit card could offer a return on your spending (cash back or points), unlike most debit cards or cash. Knowing your monthly expenditure can also give you the most accurate reward estimate when shopping around for a new credit card.
- Accelerated earn rates: Many credit cards offer accelerated earn rates for particular purchases like gas, groceries, or recurring bill payments in addition to a base rate for everyday purchases. Accelerated earning categories reward cardholders who routinely shop for specific items. People who shop broadly may benefit from a flat-rate reward card, offering one earn rate for all purchases.
From a personal finance perspective, tracking your expenses is always great advice. Not only can a budget help you match the best credit card, but it can also help identify overspending, organize bill payments, and establish a savings strategy.
2. Recognize your financial priorities
Earning credit card rewards can help families put free groceries on the table or students have more cash back in their pockets. But carrying a credit card balance and accruing costly interest charges can quickly outweigh the financial advantage of rewards.
The right credit card can be an excellent tool for reaching your financial goals, whether it’s paying off debt or saving for your next vacation.
Credit cards offer varying reward types, including cash back, travel rewards, grocery rewards, or specialty rewards — each with its advantages.
Low-interest credit cards offer a standard annual interest rate anywhere from 8.99% to 13.99% on purchases, significantly less than the 19.99% interest rate offered by most credit cards.
Related read: How Much Debt Does the Average Canadian Have? (Plus 6 Tips to Help You Get Out of It)
However, promotional interest rates on balance transfers can be anywhere from 0% to just under 2% for a limited time, which can help cardholders pay off their balance quicker and save money.
3. Choose your reward preference
Select a credit card that aligns with how you plan to redeem your rewards.
Credit cards in this category offer cash back or rewards points for everyday purchases. Redemption options may include statement credits, cash deposits or store discounts (similar to loyalty points).
Cardholders can typically redeem travel rewards for flights, hotel stays, vacation packages, rental cars, or travel-related merchandise.
Increasingly, loyalty programs offer more flexible redemption options to assist cardholders during the COVID-19 pandemic financially and cater to the travel industry’s changing landscape. Members may see several redemption options, including cash-equivalents like gift cards, statement credits, and charitable donations — albeit usually for a lesser redemption value.
Cardholders will get the best value for travel points when they redeem rewards for travel. The total redemption value of travel rewards used this way is almost always superior to similar cash back cards.
Travel credit cards are usually the most rewarding cards if used to their full potential. However, as flexible as the programs may seem, cardholders will only get that increased point value for travel redemption.
4. Consider the annual fees
Annual fees in Canada usually range anywhere from just under $100 to nearly $700, though most fall around $120. Nevertheless, membership perks, exclusive access to deals or amenities, and additional services generally support the cost.
Most starter credit cards have no fee and introduce people to credit gradually. Once cardholders start to build their credit history, they may become eligible for more rewarding cards, often sporting an annual fee.
In this case, a no-fee credit card can be beneficial as a secondary card, offering the user a payment alternative and supporting a low credit utilization ratio, which can help increase your credit score if used responsibly.
Related read: Are Credit Cards with Annual Fees Worth It?
Many people view an annual fee cautiously, but these credit cards often offer higher earn rates on everyday spending, enhanced insurance coverage and better perks.
Cardholders who spend $800 or more on their card monthly can earn enough rewards from the increased earn rates to offset the cost of a $120 fee.
Pro tip: Look for a credit card welcome bonus that offers an annual fee rebate or waiver for the first 12 months. This promotion could save you over $100; however, you should still consider the fee past the first year.
5. Calculate your annual income
Many credit cards have eligibility requirements beyond the applicant being the age of majority in the province or territory they reside. Income is one of them.
Many secured credit cards or student credit cards have little to no income requirements. At the same time, many no-fee credit cards have low income requirements. But when it comes to top-tier rewards credit cards, the income requirements can be quite steep — sometimes, more than the average salary in Canada.
Pro tip: Cardholders may qualify for more prestigious credit cards as a family, considering household income rather than personal income for eligibility.
6. Know your credit score
Using a credit card can improve your credit score and build a long credit history, opening the possibilities to more advanced credit products like top-tier credit cards or a mortgage.
Related read: What Is a Good Credit Score?
As you advance in your career and hopefully earn more money, you may become eligible for better and better products. It can be advantageous to reassess your credit card every so often to always use the best card for your current life stage. With each new career change, promotion, or life milestone, the things you spend money on will evolve too; time to assess again.
7. Understand the reward structure
Cash back rewards can be straightforward, offering cardholders a percentage of each purchase. However, loyalty programs provide varying point redemption value, and it can be tricky to tell just how much your balance is worth.
Consider the accelerated earning categories for each card. Some cards will look similar. For example, a few top travel cards offer five points for every $1 spent at grocery stores and restaurants. However, these cards may vary for redemption value. That means that although the reward balances are the same, the value differs.
For instance, it can take a lot longer to earn AIR MILES Reward Miles than other top travel points, but they are typically worth the most upon redemption.
Most credit card reward programs have online catalogues for members to browse, which are publicly accessible. You can use this to your advantage and find the monetary value of points.
First, search for the item’s price online. Next, divide it by the number of points needed for redemption.
Here is an example:
Ben wants to redeem 6,700 points to buy a $50 gift card from the reward catalogue. The value per point is 0.0075 (50 ÷ 6,700). He takes a moment to think about his choice and decides to build his balance instead, hoping for a flight reward one day. Ben has enough points for his trip a year later, opting to buy a $400 flight for 40,000 points. The value per point is now 0.01 (400 ÷ 40,000), significantly higher than the cash-equivalent option. Ben gets the best redemption value for the travel reward.
The RATESDOTCA credit card tool automatically converts all rewards, miles, and points into cash value for a fair comparison.
8. Review the perks and benefits
Credit cards have numerous benefits. Depending on the card, members may see shopping coverage like extended warranty and purchase protection or VIP airport services. While some services are standard, others are rare, like mobile device insurance, price protection or roadside assistance.
Note, some coverage may have exclusions that affect older cardholders. Travel insurance coverage may be reduced for travellers 65 and over. On the other hand, other credit cards have travel insurance that extends to the cardholder’s immediate family, including their spouse and children.
It is essential to read the insurance certificate that comes in your credit card welcome package for the exact details that pertain to the card.
Still, many of these extra benefits can save cardholders from paying out-of-pocket expenses and are another reason to consider a credit card with an annual fee. These cards usually offer more luxurious perks and more significant savings.
9. Research the issuer
A common credit card myth is that your card needs to come from the financial institution you bank with; this is false.
Over a dozen credit card issuers in Canada offer a wide range of perks, including exclusive travel guarantees, credit building features, and shopping and travel insurance coverage for cardholders.
10. Select a payment network
Lastly, prospective cardholders can choose from the three leading payment networks in Canada, Visa, Mastercard and American Express.
These payment networks are accepted in over 200 countries and are recognized worldwide. Much like credit card issuers, the payment networks also offer exclusive perks like special access to events, hotel and wine collections, or experiences.
Pro tip: If a payment network isn’t accepted at a retail store, try paying with a mobile wallet — the transaction should work. Similarly, if a payment network isn’t taken at an online shop, consider a third-party payment system like PayPal.
Compare credit cards
Choosing the right credit card does take a bit of research, but it can be well worth your time. A card that suits your spending habits could earn you hundreds of dollars every year.
Here at RATESDOTCA, we have broken down the more challenging parts of shopping around and simplified the process by converting all miles, points and rewards into a cash value for a fair comparison. We also list the top perks and insurance coverage of each card for easy access to important details.
Simply input your spending habits into our marketplace tool or compare credit cards using the default settings to find the best credit cards in Canada.
Rates, product information, and reward estimates are subject to change at any time and do not constitute financial advice. This post was not sponsored. The views and opinions expressed in this review are purely those of RATESDOTCA. Information in this article is accurate as of the date of this posting, April 14, 2021. Read our full disclaimer.