Most of us are aware of the risks of using credit cards beyond our means. It’s critical to avoid accumulating debt beyond your ability to repay. However, used responsibly, there are several advantages to using credit cards, over debit or cash, many people simply aren’t aware of when making their purchases.
1. Price Protection (Refund a Price Drop): Ever buy an item and then find out a month or two later that it’s on sale for 50% of the price you initially paid? Now you can use your credit card to pay for that item and your credit card company may refund you the difference! For example, the MBNA Rewards World Elite Mastercard states that “if you make a qualifying purchase with your card and find the same product advertised in Canada at a lower price within 60 days after purchase, the difference will be refunded, up to $500, subject to a calendar year maximum of $1,000 per account”. That’s a great way to shop with confidence at a time that’s convenient for you, with the assurance you’ll benefit from a sale in the near future.
2. Purchase Protection: Most Canadian credit cards will protect items from damage or theft within the first 90 days. This is one protection many cardholders simply aren’t aware they have, but offers great value. For example, the Scotiabank Momentum Visa Infinite cash back card offered the highest coverage we saw with “repair or replacement limited to the original purchase price or the replacement price or $10,000, whichever is the lesser” for “loss, theft, damage or fire.”
3. Extended Warranty: Many Canadian credit cards offer free extended manufacturer warranty protection, for items purchased with your credit card. For example, buy a $700 HDTV with a 2 year warranty, and the MBNA Smart Cash credit card “will automatically double the manufacturer’s warranty on qualifying purchases up to an additional one year.” This should make you think twice before buying unnecessary, and very expensive, extended coverage (upwards of $100) many electronic and home furnishing stores offer.
4. Car Rental Insurance: Why people still pay for over-priced auto rental collision insurance, when most credit cards offer it for free is a mystery. Do not pay for up-sold car rental insurance before you’ve checked to see if you’re already covered. It’s extremely expensive (typically $15-$30 a day) and in all likelihood covered for FREE by one of your existing credit cards. Any of the credit cards referenced above has it as a free, included benefit. Just charge the entire cost of the rental car to your credit card and you’re good to go.
5. Travel Insurance: If you travel, don’t buy any supplemental travel insurances before knowing what your travel credit card already protects you for. Many Canadian travel cards can save you hundreds of dollars for a single trip. For example, the American Express Gold Rewards credit card covers you for emergency medical, trip interruption, flight delay, lost or stolen baggage, baggage delay, car rental theft or damage, $500,000 travel accident, and hotel/motel burglary insurance. The value of these insurances for a family of 4 travelling to Florida can cost you well over $450 if bought directly.
6. Security: Virtually every Mastercard and Visa credit card offered by Canadian banks offers ZERO liability. As one issuer describes it: “as a MasterCard® credit card cardholder, you will not be responsible for unauthorized purchases made in the store, over the telephone or online.” So if a store clerk steals your credit card number and buys a new watch with your card, no worry, the charges will be reversed, whether for $100 or $100,000. While you will eventually have your charges reversed for debit fraud, the stolen money that was taken out of your account will not be refunded by the bank until the investigation is complete. That’s why we think credit cards offer better fraud protection than debit, it’s the issuers money that was stolen in the first place, not yours.
All that said, while credit cards do need to be used responsibly, by using them to make your purchases instead of cash or debit, they can offer very valuable benefits without any incremental costs. The other lesson is to make sure you NEVER pay for supplemental insurance or warranties before knowing whether your credit card already covers you for the same or better. Of course, it goes without saying that credit cards also offer rewards programs that cash or debit just don’t come close to equaling.