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Rewards cards can be lucrative…
But reading the fine print when shopping for a card is a must.
Why? Because the rewards may expire, the card might not have the travel insurance coverage you’re looking for or the card may charge hefty foreign exchange fees.
Read below for some common sections of the fine print and what you should be looking for when searching for a new card.
Did you know that credit card issuers can’t raise your credit limit without your permission, but credit card holders can ask for an increase?
An increase in your credit limit means the utilization ratio (your balance to your credit limit) is lowered (assuming your balance is kept the same). A lower ratio means you’re using less of the credit currently available to you which is a positive sign in the eyes of a credit card company.
If you’re looking to get another credit card you might want to consider asking for a credit limit increase on your current card as it will show a lower utilization ratio.
Perhaps the most often discussed part of a credit card is the interest rate. And with good reason – some rates can be higher than 20% on outstanding balances.
The cardholder agreement should clearly outline the interest rate for purchases, cash advances, and any promotional rates. It should also specify the grace period – the number of days with no interest on new purchases if the outstanding balance is paid by the due date.
While interest rates are something to consider for anyone with an outstanding balance, I’d suggest anyone looking to get a rewards card not carry a monthly balance on their credit card.
Because the interest alone would easily cancel out any rewards earned.
Here is an overview of the different types if interest rates and what they mean:
- Purchase interest rate ‒ this is the most basic one – it’s the interest charged on purchases put on the card for goods and services. The interest is only charged on an unpaid balance. The interest charges start after the grace period and go back to the date the purchase was first made. A typical interest rate is about 20-25%.
- Cash advance ‒ this is the interest rate charged when you use your card to get cash. This interest rate is typically higher than a purchase rate and begins the day the cash is taken out. I would recommend alternative ways of getting cash since the rates are so high.
- Balance Transfer ‒ this is the interest charged when you transfer an outstanding balance (an unpaid balance) from one card to another. The receiving card typically charges interest as soon as the balance is transferred over. This rate is also typically high (around 20-25%).
- Promotional Balance Transfer ‒ this is the interest rate that is offered to someone who transfers their balance to a card. The rate is typically lower but only lasts for a short period of time, then the regular rate (higher) kicks in. To avoid paying interest charges it’s important to always pay off the balance every month. One great example of this is the BMO CashBack Mastercard:
Foreign Exchange Fees
It’s important to consider how you’ll pay for everyday expenses when travelling.
While a rewards card can give you lucrative rewards while at home, some top travel rewards cards (ironically) also come with a sizable foreign exchange fee, which is commonly 2.5%.
This is important because on top of this fee you could also actually lose money if you buy something in a foreign exchange and then return it.
Exchange rates fluctuate and this means the rate used when you bought the item may be different than the rate used when you return it.
To avoid any issues you should make sure your credit card doesn’t have a foreign exchange fee and pay cash for items you may return when travelling. A couple of options:
Did you know that some credit card fine print also includes the right of the credit card company to take money from your bank account if the balance isn’t paid at the end of the month?
This is commonly called the “right to offset” and you’ll want to make sure you pay off your balance monthly to avoid any issues.
Travel Insurance Coverage
One of the big perks of having a travel rewards card is the complimentary travel insurance coverage all cardholders receive. The fine print is key when reviewing the coverage details.
For example, some card agreements specify that the cardholder is eligible for compensation for a flight delay (up to a specified dollar amount) but there is a minimum flight delay such as 4 hours.
In general, when making any type of travel insurance claim it’s important you keep all receipts, and use your card to charge the entire cost of the trip. Some cardholder agreements state that the full cost of a flight must be charged to the card in order to qualify for travel insurance.
For any delays while travelling, it’s important to get as much documentation as possible. For example, for a flight delay that is eligible for coverage with your card, you’ll want flight itineraries and original/reissued boarding passes.
The more documents you have to substantiate your claim, the better the odds you’ll be reimbursed by the credit card company.
Types of Credit Card Insurance
The annual fee on a credit card is a big thing to consider when looking at credit cards because it directly impacts how much value you can get for your spending every year.
In the fine print you’ll want to look for a clause that states that the annual fee is ‘set’ and will not change. Most cards do not have this wording, and instead just say that the fee is ‘non-refundable’ or that it is ‘subject to change’.
You’ll want to check your monthly statements though because the annual fees can (and do) increase. For example, RBC’s Westjet World Elite card, not so long ago, upped their annual fee from $99 to $119, which is indicated on the monthly statement. The best no annual fee cashback? These two top our list:
The most important part of getting a new credit card (aside from paying the balance off at the end of each month) is the rewards.
The fine print in the user agreement should outline what you can expect to receive, restrictions (if any) and timing. You’ll want to pay attention to the timing because each card is different, and rewards aren’t necessarily paid out on your anniversary date (when your annual fee is typically charged).
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So, if you’re planning to cancel your credit card make sure you read the fine print so that you don’t automatically lose your rewards balance if the account is closed.
It’s obvious that you’ll want to pay your balance at the end of each month so that you aren’t charged sky-high interest rates. But the timing of your payment is important.
The fine print may stipulate that the payment is credited to your account when the bank receives it, not when the payment is actually made. If there is a delay between institutions you could be responsible for the delay, which means you may end up paying interest.
To avoid this situation I set up a pre-authorized payment which means the monthly balance comes out at the end of each month automatically.
It’s standard for a credit card to offer zero liability on card transactions, which means the cardholder is not held liable for any unauthorized transactions made on the account.
However, the fine print may state that the cardholder is responsible for ‘reasonable care’ – another term for saying the cardholder is required to protect their PIN number and card at all times, not give it out for others to use, and review their statements monthly to report any unauthorized transactions.
If it’s shown the cardholder didn’t exercise ‘reasonable care’ when using the card they may be liable for unauthorized transactions.
Personal Information Consent
Unfortunately another standard clause in a credit card agreement is the consent to collect.
This means the cardholder agrees that the bank can collect their personal information which may be used for marketing purposes.
A good example is my Scotiabank credit card – I don’t have any other banking with Scotia aside from the credit card, but I get the occasional phone call from Scotia offering to sell me investment products and insurance. The cardholder agreement stipulates that Scotia has the right to use my personal information (income, occupation, etc) to contact me about offers that may interest me.
It’s worth noting that the agreement also has a withdrawal option, where I can call Scotia to withdraw my consent to use my personal information for product marketing.
If you disagree with the bank using your personal information to market products to you, you’ll want to make sure there is a ‘withdrawal’ option in the agreement.
Higher Acceptance Costs
Your cardholder agreement may have a note that mentions higher acceptance costs.
This means the merchant that accepts your card is likely to incur higher costs in exchange for you collecting rewards.
If you pay with cash the merchant isn’t charged a percentage of the sale but you also don’t collect any lucrative rewards.