Credit Cards 101

I know this is not "news" for those who are die hard followers, but as I seem to be fielding a few questions about cc I thouhgt I post a simple 101 and expand on it so everyone is on the same page. I promise to get back into analyzing credit cards very quickly.

We all choose credit cards in a very random manner with a simple objective in mind; obtaining the dream product/ service that will satisfy our needs. Whether it be the dream trip to Fiji, taking the grandkids to DisneyWorld or a discount on your next car, choosing the right credit card can save you few thousand dollars a year.

The first thing one should do is create a goal of what they’d like to achieve with the credit card: travel, financial reward (i.e. cash back), groceries discount, future car purchase discount, etc…

Let’s start with travel. There are two types of cards that one can obtain: 1) A card directly associated with an airline program (i.e. Aeroplan, WestJet, British Airways, etc…). 2) A card that gives you points that equate a dollar value towards any type of travel/purchase/ cashback.

Aeroplan mileage redemption levels to increase

In case some of you haven't heard, Aeroplan will be increasing the amount of mileage needed in exchange for travel. Take this into consideration when applying for a credit card that is directly tied to this loyalty program as your dream flight/vacation may require more out of pocket dollars.

Credit card comparison chart

Below is chart comparing some of the most popular credit cards, showing the true spending needed to obtain a free trip to Paris.


In the comparison chart I show the cost of an Air Canada flight to Paris for a weeklong getaway, except for the TD AAdvantage Visa which flies on American Airlines. Overall, you will need to spend $3,600 less on the TD AAdvantage Visa to obtain a free flight to Paris. It's important to consider that certain credit cards allow you to cover the cost of taxes and surcharges when redeeming your points while others don't. These extra costs can be substantial depending on which airline you choose to fly with.

Note that the BMO World Elite MasterCard charges a mandatory $18.95 + HST fee (included in this comparison) online booking fee to cash in a reward through their travel reward system. Also, the CIBC Aerogold Visa allows you to earn 1.5 miles per dollar spent on groceries and gasoline, allowing you obtain your reward a little faster.


In choosing your credit card, take your flexibility into consideration. The demand for using the Aeroplan miles program  is very high, meaning most rewards require booking far in advance to obtain the requested dates. Otherwise, you will need to spend more miles to obtain the same flight. American Airlines AAdvantage program has more availability and more flight options to exchange an award, giving one more flexibility in dates and departure times.



For this comparison the cost of an economy return Air Canada ticket to Paris was $530 + $406 in taxes and surcharges. An American Airlines flight on the same date cost $900 + $148 in taxes. Note that even though one airline charges more for the flight, the number of miles needed for the reward is 40,000 on AA while it's 60,000 on Air Canada, meaning you'll have to spend less dollars to obtain the same reward.

COMPARISON CHART		Amex Aeroplan Plus	CIBC Aerogold Infinite *	BMO World Elite **	RBC Visa Infinite	Capital One Aspire World	TD Advantage
Points/Miles per $1 spent		1.25	1	1	1	2	1
Points/Miles needed for free ticket to Paris		60,000	60,000	49,263	65,000	93,600	40,000
Base ticket cost	$530
Base ticket taxes	$406
TOTAL spend needed for reward	$936
	Miles/ Points needed	60,000	60,000	49,263	65,000	93,600	40,000
How much you need to spend to get a free flight to Paris		$43,739	$60,406	$49,263	$65,427	$46,800	$40,146
Does this card cover airport fees and taxes? Y/N		No	No	Yes	No	Yes	No
Out of pocket expenses		$406	$406	$0	$427	$0	$146

TD AAdvantage Visa

This is one of my favourite cards. It's mostly meant for redeeming international tickets, though vacation packages and small rewards (1-800-flowers, Bose headsets, etc...) are also available. I find the annual fee ($120) to be in-line with others and the award availability pretty easy to cash in. You earn 1 AAdvantage mile on American Airlines for every dollar spent.

Credit Card Guru score:  4.5 out 5 

Pros

• AAdvantage miles can be used to travel anywhere the Oneworld Alliance goes (almost anywhere)
• Double AA miles are awarded for using American Airline services (buying tickets, Admiral's Club & upgrades)
• Mile redemption is straightforward and easy for flights or upgrades. For example a return trip from Toronto to Mexico is 25k miles in low season and 30k miles in high season. Click here to view their redemption chart.
• Using AA miles for travel is usually available on short notice without having to spend additional miles. For example I booked a trip to Buenos Aires, Argentina in May 2010 for 40k points with 8 days notice (using Aeroplan miles would cost you double or triple the miles on such short notice). 
• Car rental insurance, medical insurance, etc.. is also included.
• 2,500 AA miles upon renewal, each year
• AA miles don't expire if you cancel your credit card. As long as you have an activity with AA partners once every 18 months, the miles stay active. With a banks points program, the points will expire once you cancel the credit card.

Cons

• The biggest drawback is the lack of direct flights within Canada. Travel has to be through the US. 
• Trip cancellation insurance is not included
• The quality of the AA planes is not the best in the world, but it's better than many Central America airlines.

Overall, this is one my favourite credit cards to earn and redeem free flights.

Capital One Aspire

Capital One Aspire  is the newest credit card in the market and is being supported by a big marketing campaign. Their main pitch is 2 for 1 in terms of points earned per dollar, which is not bad if you plan on redeeming for "small" awards or short-haul flights.

Credit Card Guru's Rating:  4 out of 5
Overall, I think this is an excellent primary credit card if you're looking to redeem points for non-travel awards (i.e. TV's, microwaves, iPad, MacBook, etc..). This card is above average for travel redemption vs. other points cards. CIBC AeroGold Visa or TD AAdvantage Platinum Visa credit cards are better for medium to long-haul flight redemption.

Let me highlight some of the Pros and Cons.

Pros

• Excellent start-up bonus (35,000 points)
• Very good anual renewal bonus (10,000 points)
• Ample redemption awards (allowing one to redeem for anything that can be charged to the card)
• Good travel coverage (medical, trip cancellation, etc...)
• Redemption values are comparable to other points (non-airline) credit cards, allowing you to spend less to obtain the "small" awards.

Cons

• Not great for medium to long-haul flight awards (i.e. a flight to Cancun costs $916+ taxes on AC, thus you would have to redeem 92,000 points, equivalent to $41,000 in annual spending, averaging out to $3,400/ month).
• To redeem the same flight with a CIBC Aerogold credit card you would spend $35,000 (for 35,000 points), thus your overspending with Capital One.
• It's geared to the above-average household income consumer, or above-average credit card spender as the redemption levels are difficult to obtain.

Canadian credit cards

We've all watched the TV commercials of the big banks selling us the dream of going on vacation on points or paying for that big screen TV on points. In reality most people do not achieve their dream until much later than they thought and only after putting every last penny on their credit cards to see nothing materialize.

This blog is not to reveal the mystery behind these banks, but to provide an interactive guide that will truthfully inform consumers which credit card is right for their needs and help you understand which credit card will help you reach a realistic dream.

As I build this site I hope to address the common mistakes in choosing a credit card and identifying some tips on how to get the most of out of your current cards. Feel free to ask questions on a credit card or reward mechanism that you may have.